What is the plug-in electric vehicle credit?

By: Akweli Parker

Image Gallery: Plug-in Hybrids A Toyota Prius plug-in hybrid concept car is on display on the first press day of the Frankfurt Auto Show in Frankfurt, Germany, on Sept. 15, 2009. See more pictures of plug-in hybrid cars.
AP Photo/Ferdinand Ostrop

Journalists have expended countless column inches over the years trying to answer the question, "Does it pay for a typical car buyer to purchase a hybrid gasoline-electric vehicle?" The answer has proven elusive, probably because it's nearly impossible to place a price tag on the psychological reward of driving a cleaner-running car.

As part of the American Recovery and Reinvestment Act of 2009 (commonly referred to as the Stimulus bill), Congress decided to make that calculus a little bit easier for consumers, by providing a tax break to people who buy certain electric-powered vehicles.

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This "plug-in electric vehicle credit" seeks, like many tax incentives, to encourage certain public behavior. In this case, the credit is encouraging citizens to buy plug-in hybrids.

A few years ago, people typically didn't need to plug in hybrid vehicles. If the electric charge on, say, your Honda Insight or Toyota Prius ran low, the car's computer would simply request its on-board gasoline engine to replenish the charge. Now, however, with electric conversion kits and new hybrid vehicles intended to run primarily on electric motors, it's considered "normal" to plug in some hybrids at home for their nightly recharge.

Qualifying for a credit doesn't automatically mean you will get a check from the government. It simply means your tax bill will go down by the specific credit amount. If your tax bill is zero or if the government owes you money at tax time, then you will get a check with the amount of the credit figured in.

Keep reading to find out what plug-in hybrid owners must do to qualify for the plug-in electric vehicle tax credit.

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Qualifying for a Plug-in Electric Vehicle Credit

So what are the rules of the road for consumers who'd like to get a nice, four-figure check from the U.S. Treasury as acknowledgement for buying a plug-in hybrid?

You can find out complete details from the Internal Revenue Service Web site. In a refreshing change, the IRS explains the rules, limitations and procedures in fairly straightforward language -- on this particular topic, anyway. Here's a summary:

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  • Plug-in Electric Drive Vehicle Credit (Section 1141): Vehicles must have four or more wheels, must have been bought after Dec. 31, 2009, must weigh less than 14,000 pounds (6,350 kilograms) fully loaded, must have a battery with a rating of at least four kilowatt hours and must be rechargeable from an external electricity source. The credit ranges from $2,500 to $7,500, depending on battery capacity. The bigger the battery, the bigger the break when you file your federal taxes [source: Internal Revenue Service].
  • Plug-In Electric Vehicle Credit (Section 1142): The law also allows a tax credit for two special categories of electrics -- certain low-speed electric vehicles, such as golf cart-style vehicles, and two- or three-wheeled vehicles, including electric motorcycles. The amount of this credit equals 10 percent of the cost of the vehicle, up to a maximum credit of $2,500 for a purchase made after Feb. 17, 2009, and before Jan. 1, 2012 [source: Internal Revenue Service]. To give you a couple of examples, machines such as the Star Electric Low Speed Vehicles (LSVs) and the "Zero" motorcycle series from ZevMoto would qualify for tax credits under this provision [sources: Star Electric Vehiclesand Zevmoto].
  • Conversion Kits (Section 1143):Finally, the law also allows a tax credit for conversion kits that let you plug in hybrid vehicles to recharge the electric battery. The credit is equal to 10 percent of the cost of converting a vehicle to a qualified plug-in electric hybrid vehicle that was placed in service after Feb. 17, 2009. The maximum amount of this credit is $4,000, and the credit goes away for conversions made after Dec. 31, 2011. A taxpayer may claim this credit even after claiming a regular hybrid vehicle credit for the same vehicle in an earlier year [source: Internal Revenue Service].

Let it be known that you shouldn't construe anything in this article as definitive tax advice. For that, talk to your accountant or other qualified tax professional. Clearly, though, Uncle Sam wants us taxpayers to purchase and drive plug-in hybrids as one way to stimulate the economy. And he's willing to give us back some of what he takes from us in order to make that happen.

For more information about the plug-in vehicle credit and other related topics, follow the links on the next page.

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Related HowStuffWorks Articles

  • Chevrolet.com. "2011 Volt Electric Car." (March 10, 2010)http://www.chevrolet.com/pages/open/default/future/volt.do
  • Edmunds.com. "Plug-In Hybrid Tax Credit Update: Economic Recovery Law Boosts Numbers Eligible." Feb. 17, 2009. (March 14, 2010)http://blogs.edmunds.com/greencaradvisor/2009/02/plug-in-hybrid-tax-credit-update-economic-recovery-law-boosts-numbers-eligible.html
  • Electric Drive Transportation Association. "History of the Plug-In Electric Vehicle Tax Credit." (March 14, 2010) http://www.electricdrive.org/index.php?ht=d/sp/i/11032/pid/11032
  • Internal Revenue Service. "Energy Provisions of the American Recovery and Reinvestment Act of 2009." April 2009. (March 11, 2010)http://www.irs.gov/newsroom/article/0,,id=206871,00.html
  • Plug In America. "State and Federal Incentives for EVs, PHEVs and Charge Stations." (March 10, 2010) http://action.pluginamerica.org/t/5960/content.jsp?content_KEY=5545
  • Star Electric Vehicles. "Tax Credit Available Now for Star Low Speed Vehicles." (March 12, 2010) http://www.starelectricvehicles.com/taxcredit.html
  • U.S. Department of Energy. "Qualified Plug-In Electric Drive Motor Vehicle Tax Credit." Feb. 19, 2010. (March 11, 2010)http://www.afdc.energy.gov/afdc/laws/law/US/409
  • Zevmoto. "Plug In Electric Vehicle Tax Credit for Motorcycles." (March 14, 2010) http://www.zevmoto.com/plug-in-electric-vehicle-tax-credit.asp

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