$2,500 Federal Tax Credit for Used Electric Vehicles Being Considered in New Bill

Feb 12, 2021   

Democrats are considering providing a federal tax credit of up to $2,500 for used electric vehicles for the first time in the new GREEN act; however, there are multiple stipulations that prospective buyers should be made aware of.

The federal tax credit being proposed for used electric vehicles is limited to $2,500 or 30% of the vehicle’s sale price, whichever amount is less. Eligibility of vehicles is capped at a $25,000 total purchase price, making this credit ideal for older and more affordable EV’s.

The vehicle itself has to be at least two years older than the calendar year it’s registered in. The credit applies to the first transfer of the vehicle following the date that the bill is enacted. Taxpayers are also limited to only receiving this particular credit once every three years.

Previous versions of the bill stipulated that electric vehicles would have to be purchased from a dealer to qualify for the credit, although it would apply to either a purchase or a lease. This should make used inventory purchased directly from Tesla eligible, assuming the automaker offers older Model S or potentially even Model 3 Standard Range vehicles at a total purchase price that’s under the proposed limit.

Potentially limiting the credit to dealers makes sense, since buyers could otherwise falsify a bill of sale (which we strongly suggest against) in order to claim the credit on higher-priced EV’s. However, the final version of the bill may support incentivizing private sales as the current verbiage is slightly unclear. We will continue checking the legislation as often as possible.

To further complicate matters, the total amount of the credit is reduced by $250 for each $1,000 that a taxpayer’s gross income exceeds $30,000. Effectively, the credit is aimed at lower-income individuals to help make pre-owned electric vehicles more affordable.

The federal tax credit had previously been criticized as being targeted at wealthier individuals; ultimately, this provides support to increase EV adoption for as many people as possible.

Pre-owned electric vehicle buyers had previously not benefitted from a federal tax credit, so this move could in turn help incentivize the used market. There are many practical, high-quality electric vehicles that aren’t from Tesla that are definitively affordable enough to qualify.

The pre-owned electric vehicle credit isn’t limited to a specific cap and would be terminated on December 31, 2026.

Should this bill take effect, and it likely will as Democrats hold control of the House and Senate, buyers would be able to benefit from the tax credit on eligible vehicles purchased beginning next year.

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