With the news of climate change rapidly affecting the whole planet, many of us are undoubtedly thinking about what we can do to help decrease our carbon footprint. July 2023 has been the warmest month since 1850. While it would require rethinking and restructuring all current industries to reverse climate change, any contribution we can make individually is invaluable.
Research tells us that passenger vehicles typically emit about 4.6 metric tons of CO2 annually. With all-electric vehicles producing zero tailpipe emissions, purchasing one can be an essential step toward curbing your annual gas emissions. While this is a noble cause, unfortunately, not all of us can afford an electric car.
To help those of us wishing to support efforts at slowing down climate change, the government and the state offer incentives. Let’s take a closer look at federal tax credits and EV tax incentives in California. But first, let’s get acquainted with the different types of electric vehicles out there.
Three Types of EVs
Understanding the different types of EVs available on the market is important because, in order to qualify for an incentive, the car that you purchase needs to fit the requirements.
Fuel-Cell Electric Vehicles
Similar to fully electric vehicles, fuel cell electric vehicles (FCEVs) have an electric motor, but they generate electricity through a hydrogen-fueled fuel cell instead of solely relying on a battery for their electrical needs.
Battery Electric Vehicles
Also known as all-electric vehicles, these cars feature an electric motor as their primary propulsion source instead of an internal combustion engine. They rely on a substantial traction battery pack to supply energy to the electric motor. Due to their electric operation, BEVs produce zero tailpipe emissions and do not need liquid fuel, such as a fuel pump, fuel line, or fuel tank.
Plug-in Hybrid Electric Vehicles (PHEVs)
In this case, batteries energize an electric motor alongside an alternative fuel source like gasoline to propel an internal combustion engine (ICE). The batteries in PHEVs can be replenished via a wall outlet or charging infrastructure, the ICE itself, or by harnessing energy through regenerative braking.
Typically, these vehicles operate on electric power until the battery’s charge nears depletion, at which point the vehicle seamlessly transitions to utilizing the internal combustion engine.
What Are Non-Refundable Tax Credits?
Every income is taxed, but tax credits can reduce income taxes. Taxpayers can use tax credits to claim a dollar-for-dollar amount on their tax return. There are two types of tax credits: refundable and nonrefundable.
Refundable tax credits offer a unique advantage; if the credit amount exceeds the taxpayer’s actual tax bill, they can receive the excess as a part of their tax refund. Nonrefundable tax credits do not result in a refund. Once the taxpayer’s tax liability reaches zero, any remaining amount from the credit is not returned as a refund.
Federal Tax Credits for EVs
When it comes to support in terms of purchasing new electric vehicles, the federal nonrefundable tax credit could reach up to $7,500. Even if you opt for a pre-owned electric vehicle, you could still benefit from a credit of up to $4,000. Still, it’s important to keep in mind that your vehicle needs to meet battery and mineral requirements to qualify.
If you live in California, you’re in luck! The California Air Resources Board (CARB) gives the green light to the Center for Sustainable Energy to administer rebates to electric vehicle owners under the Clean Vehicle Rebate Project (CVRP).
EV Tax Incentives in California
The Clean Vehicle Rebate Project (CVRP) in California provides rebates ranging from $1,000 to $7,500 if you buy or lease a new, qualifying zero-emission car. The eligible vehicles encompass electric cars, plug-in hybrid electric vehicles, and fuel cell vehicles. You can find the full list here.
Los Angeles County
If you buy or lease an eligible battery electric vehicle or plug-in hybrid electric vehicle, you can potentially qualify for a state rebate of up to $2,000. The specific rebate amount depends on the type of vehicle. Furthermore, if you meet low and moderate-income requirements, you have the opportunity to receive an additional $2,500 on top of the standard rebate amounts.
If you are a residential electric consumer, The LADWP Used Electric Vehicle (EV) Rebate Program extends rebates of up to $1,500 when you buy a qualifying secondhand EV. If you are enrolled in either the LADWP Lifeline or EZ-SAVE Low-Income Customer Assistance initiatives, you are eligible for an extra $1,000 rebate.
For more detailed information on incentives available in different counties around Los Angeles, you could consult the following Incentive Search tool.
How Often Do CVPR Requirements Change?
The CVRP’s Terms and Conditions and Implementation Manual undergo revisions every six months to accommodate operational process adjustments. The most recent routine update happened on August 15, 2023. Also, it’s worth keeping in mind that, given limited funding, CVRP stops accepting new applications once the available funds are exhausted. So, if you’re planning to apply, please do not put your plans on the back burner!
If you are looking for more information on how tax incentives could help you gain savings, you might find this online calculator tool super helpful as well. Simply add your personal information, such as your zip code, vehicle type, household size, and household income, and see how much you could save while helping the environment.
Purchasing an electric vehicle is a great way to contribute to lowering gas emissions. If you need more personalized help to see if you are eligible for any federal or state tax credits, feel free to reach out to Exact Tax Inc.
Our mission is to help individuals, businesses, and communities make informed tax decisions. We also care about the environment and want to empower California residents with all the knowledge they need to make the final decision on purchasing an electric vehicle. Contact us today to book your consultation.