October 2014 Question of the Month&#58 PEV and other Tax Credits

November 14, 2014

Question of the Month: How does the federal plug-in electric vehicle (PEV) tax credit phase-out work, and has it begun for any vehicle manufacturers? What is the status of other federal alternative fuel tax credits?

Answer: The Internal Revenue Service (IRS) Qualified Plug-In Electric Drive Motor VehicleTax Credit begins to phase out for a manufacturer when at least 200,000 qualifying vehicles produced by that manufacturer have been sold for use in the United States, based on sales after December 31, 2009. Many of the other federal tax credits, such as the Alternative Fuels Excise Tax Credit and the Alternative Fuel Infrastructure Tax Credit, expired at the end of 2013 and have not been extended or renewed. Additional tax credits have or will expire this year.

Federal PEV Tax Credit Phase-Out
Each manufacturer must report quarterly to the IRS on their vehicle sales. According to the IRS Plug-In Electric Drive Motor Vehicle Credit Quarterly Sales page no manufacturers have reached the 200,000 cumulative PEV sales mark. This means all qualified vehicles are still eligible for their full credit amounts.

The phase-out period stretches over one year, beginning in the second calendar quarter after the quarter in which the manufacturer hits the 200,000 vehicle sales mark. From there, all qualifying vehicles sold by the manufacturer are eligible for 50% of their specified credit for the first two quarters and 25% of the credit for the next two quarters. For example if a manufacturer sells its 200,000th vehicle in the first quarter (Q1) of 2015, the credit amounts for all of that manufacturer’s eligible vehicles would phase out as shown in the table below.

Quarters and Credits:

Q1 2015, Full amount
Q2 2015, Full amount
Q3 2015,  50% of full amount
Q4 2015, 50% of full amount
Q1 2016, 25% of full amount
Q2 2016, 25% of full amount
Q3 2016, No credit

Also see the phase-out example on www.FuelEconomy.gov

Below are some other helpful facts about the federal PEV tax credit:
Tax credit amounts range from $2,500 to $7,500 based on the vehicle’s battery capacity and weight. Details can be found on the IRS Qualified Vehicles page http://www.irs.gov/Businesses/Qualified-Vehicles-Acquired-after-12-31-2009

To file for the credit, you must complete IRS form 8936 and attach it to your federal tax return. http://www.irs.gov/pub/irs-pdf/f8936.pdf

To qualify for the credit, you must own the vehicle. This means that if you lease a vehicle, you are not eligible. That said, the lessor may decide to pass the discount along to you.
Only new vehicles are eligible; the vehicle may not have been titled before.

For more information, see the Plug-In Electric Drive Vehicle Credit page at http://www.irs.gov/Businesses/Plug-In-Electric-Vehicle-Credit-(IRC-30-and-IRC-30D)

Other Federal Tax Credits
Several tax credits expired after December 31, 2013, including:
Alternative Fuel and Alternative Fuel Mixture Excise Tax Credits
Biodiesel Income Tax Credit and Biodiesel Mixture Excise Tax Credit
Alternative Fuel Infrastructure Tax Credit
Qualified Two- or Three-wheeled Plug-in Electric Drive Motor Vehicle Tax Credit

Even more recently, both the Hydrogen Fuel Excise Tax Credit and the Hydrogen Fuel Mixture Excise Tax Credit expired as of September 30, 2014. The Fuel Cell Motor Vehicle Tax Credit and Hydrogen Fuel Infrastructure Tax Credit are set to expire on December 31, 2014.

There have been several bills introduced to extend these tax credits during the 113th Congress. For example, the EXPIRE Act of 2014(S. 2260) proposed to extend the tax credits for 2- or 3-wheeled plug-in electric vehicles, biodiesel and renewable diesel fuel mixtures, alternative fuels, hydrogen, fuel cell vehicles, and alternative fuel infrastructure through 2015. However, none of the bills have been enacted as of October 2014.

For more information on federal incentives for alternative fuels and vehicles, see the following websites:
Alternative Fuels Data Center (AFDC) Federal Laws and Incentives page
AFDC Expired, Repealed, and Archived Federal Incentives and Laws
Finally, please note that the Technical Response Service recommends consulting a qualified tax professional or the IRS before making any tax-related decisions.

Clean Cities Technical Response Service Team