Taxpayers who purchase plug-in electric drive vehicles may be eligible to claim a tax credit. Since 2009, the IRS has provided the Plug-In Electric Drive Vehicle Credit for individuals who purchase qualified electric vehicles during the tax year. Depending on the type of vehicle, taxpayers may be eligible to claim a tax credit of up to $7,500 on their qualified purchases. As a tax credit, the Plug-In Electric Drive Vehicle Credit reduces overall tax liability. 

What is the Plug-In Electric Drive Vehicle Credit?

The Plug-In Electric Drive Vehicle Credit was created as part of the American Recovery and Reinvestment Act of 2009 and later expanded by the American Taxpayer Relief Act of 2011. The U.S. government instituted the credit to encourage citizens to purchase fuel-efficient and alternative fuel vehicles.

Under the credit, taxpayers who purchase qualified plug-in electric drive vehicles can claim a tax break of up to $7,500. The exact amount of each person's credit varies, depending on the battery power of the vehicle they purchase. All vehicles are eligible for an initial amount of $2,500, but vehicles that have a battery power of at least 5 kilometers receive an additional $417 credit. For every additional kilowatt of battery power, vehicles are eligible for another $417 in credit.

Plug-In Electric Drive Vehicle Credit Qualifications

There are a few qualifications that taxpayers must meet in order to claim the Plug-In Electric Drive Vehicle Credit. The vehicle must be purchased for personal or business use; the credit cannot be claimed on vehicles purchased for inventory or resale. Taxpayers must purchase the vehicles new with the intent to use them primarily in the United States. According to IRS regulations, the credit cannot be claimed until the title passes to the taxpayer based on the law of the state in which he or she lives.

Credit Phase Out Amounts

One of the purposes of the Plug-In Electric Drive Vehicle Credit is to encourage manufacturers to develop new fuel-efficient technologies. As a result, the credit begins to phase out after a vehicle manufacturer sells at least 200,000 vehicles of a specific model for use in the U.S.

During the first two quarters after the 200,000 threshold has been reached, the Plug-In Electric Drive Vehicle Credit is reduced to 50 percent, which means that the maximum falls from $7,500 to $3,750. During the third and fourth quarter of the phase-out year, the credit is reduced to 25 percent. After the fourth quarter of the phase-out year, the credit is reduced to zero for taxpayers who purchase that same vehicle model.

The Plug-In Electric Drive Vehicle Credit offers a substantial tax break for individuals who purchase new plug-in electric drive automobiles. If you need assistance setting up a tax payment plan with the IRS or with any other tax related issue, a qualified income tax professional can help you determine if you meet the qualifications.