PEV Incentives: What You Need to Know

Present PEV incentives include tax credits, cash rebates and perks such as car-pool lane access, reduced registration fees, even free parking and sales tax forgiveness in some states.

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Federal tax credits for plug-in electric vehicles run from around $3,000 for plug-in hybrids (PHEVs) with small batteries up to $7,500 for most all-electric cars (EVs) and a few PHEVs. (There’s a credit of up to $8,000 for fuel-cell electric cars, but we’re ignoring them in this article. That’s because they so far are few in number and are available only in a handful of California locations.)

Remember – a tax credit is not a cash rebate: You’ll need a $7,500 federal income tax obligation in the year in which you buy the car in order to get the full $7,500 for an EV, for instance. If your tax bill is less than the credit on the car you’re buying, you only get enough of the credit to zero out your income tax for the year; the government won’t send you a check for the difference and you can’t carry it over to the next year.

If you lease, the federal tax credit goes to the leasing company that owns the car (often the manufacturer’s in-house finance arm), but is usually applied to reduce lease payments.

State and local PEV incentives vary widely, ranging from things as simple as free parking or reduced electricity rates to cash rebates and tax credits. A particularly valuable incentive in crowded urban areas is solo occupancy access to a state’s car-pool lanes – but not all state with HOV lanes offer this perk. In fact, not all states and cities offer incentives. And those that are out there change often.

Right now, Colorado has the largest PEV incentive, a state tax credit of up to $6,000. Connecticut is next with a rebate of up to $3,000, followed by California, with a base rebate of $2,500 for BEVs, $1,500 for PHEVs and $5,000 for fuel-cell electrics (special provisions for qualified low-income PEV buyers can add up to  $2,000 to the California rebate).

One of the best sources for state and local PEV incentives is a listing available on the National Council of State Legislatures’ website. Plug In America’s incentives map also keeps track of state and federal inducements.

Going in armed with incentives info will help you determine how much car you can afford. And you won’t be frustrated by a salesperson who doesn’t know.