Depending on Your IRS Tax Bill, You Could Plug Into Substantial Savings

Photo Credit:Flickr/felixkramer

With just a few more weeks left in 2016, you still have time to take advantage of a program that offers substantial tax savings.

If you purchase an electric plug-in or hybrid plug-in vehicle by December 31st you could potentially drive away with a tax credit anywhere from $2500 up to $7500. This may not be the best solution for everyone with an outstanding IRS tax bill, but it could be a surprising holiday gift for some.

If you’re in the market to drastically reduce your tax bill and get a new set of wheels, there are ways to save at the federal and state level. It all depends on the vehicle you purchase and how much you owe the IRS.

A Few Qualifications

For starters, your tax bill must be at least $7500 to get the largest credit. The IRS is not going to issue you a refund if you only owe $5000 and purchase a car that qualifies for the $7500 credit. So, you’ll want to make sure you do careful research before making a purchase.

Additionally, the federal credits are based on the battery size of the vehicle. Plug-in hybrids and battery-electric vehicles must have battery packs that are rated for at least 4 kWh of energy storage and are capable of being recharged from an external source.

Models and Credits

I’ve included a partial list of some of the more popular electric vehicles that are available for the federal credit. You’ll want to check with your state to see which vehicles qualify for a tax credit.

2012-2015 Toyota Prius Plug-In Hybrid: $2,500
2013-2016 Ford Fusion Energi & C-Max Energi: $4,007
2011-2016 Chevrolet Volt, Nissan Leaf, Tesla Model S, others: $7,500

A Few Things to Keep in Mind

If you are the kind of person who prefers to lease a car instead of purchase, the federal tax credit does not apply. That’s because the credit goes to the leasing company. While you won’t get a tax break, you might get a better rate on your lease.

Also, only the original registered owner of an eligible vehicle can claim the federal tax credit. Even if the original registered owner didn’t apply for the credit for some reason, it cannot be passed along to a subsequent buyer. Once again, this might be useful if you’re looking at used cars and determine that a new model with the tax credit is a better deal than a used one if the federal tax credit program means the list price for the new model is reduced by up to $7,500.

If You Can’t Drive Into the New Year in a New Car

Buying an electric car for the tax savings may not be for you. If not, hopefully you’ve taken all the other steps to save on your taxes and now are looking toward how you can manage 2017. Keep this in mind, if the president-elect does manage to lower and simplify the individual tax brackets like he has talked about, that means rates next year will be lower, so it might be worth it to consider deferring some income into 2017. If you haven’t already gotten a year-end bonus you might elect to get it in January instead of this month. You could also wait to redeem a savings bond or put off any debt-forgiveness income.