What Tax Breaks Are Available For Fuel Efficient Vehicles?

If you are in the market for a new car, you may be wondering what sort of tax breaks are available for buyers of fuel efficient cars. Not just any car, mind you, but those that come with an electric motor, have lower levels of emissions and get excellent mileage. You recognize that the prices of electrified vehicles are much higher than comparable gas-powered vehicles, twice as high in some cases, and you want to know if there is some relief available for buyers.

Well, the good news is that there is relief. Your help comes in the form of federal tax breaks or credits and, in some cases, credits or other forms of assistance on the state level. Depending on your state, that is.

Federal Tax Breaks

Realizing that the rules and parameters of receiving assistance are subject to change, the following information is current as of May 2013. We’ll update this information from time to time, but having an inquisitive nature can help you find if there are tax breaks we might have missed or have been changed for you in particular. The following are some of the tax breaks that are available from the federal government:

Toyota Camry Hybrid tax breaks

Hybrids — At present, hybrid models such as the Hyundai Sonata Hybrid, the Toyota Prius and the Ford Fusion Hybrid are no longer eligible for a tax credit. However, if you purchased such a vehicle by the end of December 31, 2010, and you did not seek a tax credit for up to $3,400 on your tax return, then you may be able to amend your return to receive that credit. You have three years to amend your tax return, therefore if your purchase was in 2009 or earlier, then it is too late to amend it.

PHEVs — Plug-in hybrid electric vehicles or PHEVs are among the newest EV models to be introduced to the market. Thus, buyers of these models can qualify for a federal income tax credit of up to $7,500. The Chevrolet Volt, introduced in December 2010, is the first PHEV and has since been followed by a PHEV Toyota Prius, Ford Fusion Energi and the Ford C-MAX Energi.

Mitsubishi i-MiEV tax breaksEVs — Pure electric vehicles or EVs run solely on electricity. There is no gas engine and no pollutants are emitted. That same tax credit of up to $7,500 applies here and covers a number of vehicles. The first vehicle to qualify was the Tesla Roadster, which is already out of production and will soon be replaced by a different model. Vehicles that you can purchase today include the Nissan Leaf, the CODA Sedan, the Fisker Karma, Mitsubishi’s i-MiEV, Chevy’s Spark EV and the Ford Transit Connect EV. Other models, such as a battery-electric version of the Ford Focus, are also available with more models coming to the market.

CNGs — With all of the natural gas available in the United States, you would think that several compressed natural gas or CNG vehicles would be built and tax credits given. Unfortunately, neither case currently applies. Only one production model, a CNG Honda Civic, is available today. A tax credit of $4,000 was available, but it has not been renewed. There is federal legislation being considered to offer a tax credit for these vehicles as well as to increase the tax credits elsewhere, but that has not happened yet.

Volkswagen Golf Diesel tax breaksDiesels — One of the easiest types of fuel efficient vehicles you can obtain are diesels. Each of the German manufacturers sell diesels including Mercedes-Benz, Audi, Volkswagen and BMW. Even Ford, General Motors and Chrysler offer diesel engines for heavy duty pickup trucks. For 2013, we’ll see a diesel option with the Chevrolet Cruze. Alas, just like regular hybrids, the $3,400 federal tax credit has expired. Go ahead and consider a diesel, but don’t look for federal assistance as you make your purchase.

State Tax Breaks

Tax breaks or incentives on the state level are available, but you must be a resident of that state to qualify. Some states, such as California, have multiple programs available including a $2,500 tax rebate for purchasers of select PHEV and zero emissions vehicles. Golden State residents who are served by the Los Angeles Department of Water and Power may also qualify for rebates of up to $2,000 if they install a Level 2 EVSE charger with a separate time-of-use meter at their home. Other breaks include the use of High Occupancy Vehicle lanes and purchase vouchers for fleet buyers.

In Colorado a $6,000 tax credit is available for new purchases and rises to $7,500 for PHEV conversions. Georgia residents can claim a tax credit for 10 percent of the vehicle’s price up to a maximum of $2,500. Other states offer tax credits, tax rebates or special incentives such as a waiver of sales taxes, property tax breaks or a reduction or elimination of certain fees. Check with your state’s DMV for applicable incentives.

References

FuelEconomy.gov: Fuel Efficient Vehicle Tax Incentive Information Center

U.S. Department of Energy: State Incentives and Laws

Further Reading

West Coast Electric Highway Takes Shape

Volkswagen Cross Coupe PHEV Gets 131 MPG

Top 5 Most Efficient Hybrid Vehicles of 2012

See AlsoFuel Efficient Vehicles and Federal Tax Incentives