With manufacturers now promoting their new plug-in electric models, the cars have caught up with the buyer tax credit Congress dangled for them three years ago. CPAs' clients are likely to ask about this and other tax breaks for plug-in electrics.
Although the Chevy Volt was available only in a few markets earlier this year, General Motors says it's stepping up its phased rollout to make the Volt available in all 50 states by the end of 2011. Nissan maxed out its production capacity with 20,000 advance orders for its Leaf, requiring it to suspend reservations temporarily Ford is expected to introduce its 2012 plug-in Focus later this year.
HOW MUCH IS THE FEDERAL CREDIT?
The income tax credit for a "new qualified plug-in electric drive motor vehicle" was enacted as IRC [section] 30D by the Emergency Economic Stabilization Act of 2008 (PL 110-343) and modified by the American Recovery and Reinvestment Act of 2009 (PL 111-5). For each qualifying vehicle, a credit is allowed of $2,500 plus, for vehicles with at least five kilowatt hours (kwh) of rechargeable battery power, $417, plus $417 for each additional kwh above five, up to an additional credit of $5,000.
The 2011 Volt is advertised as having a battery capacity of 16 kwh. Thus, it is eligible for a credit of $2,500, plus $417, plus $417 times 11 kwh (16 kwh - 5 kwh), for a total of $7,504, just over the maximum allowable credit of $7,500.
WHICH MODELS ARE ELIGIBLE?
The 2011 Nissan Leaf has a rated battery capacity of 24 kwh, so it also appears to qualify for a full $7,500 credit, as will the upcoming Ford Focus Electric, with 23 kwh. Other requirements for a new qualified plug-in electric car are that it be powered "to a significant extent" by an electric motor drawing power from a battery with a capacity of at least four kwh that can be recharged from an external source of electricity Thus, cars like the Volt that use both a plug-in electric engine and a gasoline engine, technically known as plug-in hybrid electric vehicles (PHEVs), are eligible. Other PHEVs that appear to qualify for at least a partial credit include a version of the Escape SUV that Ford plans to offer starting next year. The Escape will be powered by an externally rechargeable 10 kwh battery pack and a four-cylinder gasoline engine.
Vehicles with fewer than four wheels or weighing more than 14,000 pounds are not eligible, although the former may be eligible for the section 30 credit available until Dec. 31,2011, of 10% of their cost, up to a maximum credit of $2,500.
For a list of plug-in motor vehicles and credit amounts for which the IRS has received appropriate information and acknowledged eligibility, see tinyurl.com/4yg77q5. An independent source of information for comparing specifications and features is the nonprofit Plug In America (pluginamerica.org).
HOW LONG IS THE FEDERAL CREDIT AVAILABLE?
Like the hybrid vehicle credit before it, the section 30D credit has a production phaseout, but a more generous one. For each manufacturer, once the total of qualifying vehicles manufactured and sold for use in the U.S. since the beginning of 2010 reaches 200,000, the otherwise applicable credit per vehicle will be cut in half for two calendar quarters, starting with the second calendar quarter after the quarter in which the threshold is met. Then it will be reduced to 25% in the third and fourth quarters and then eliminated after that. The phaseout applies to the aggregate of all qualified models produced by the same manufacturer.
The hybrid credit phased out at 60,000 vehicles per manufacturer produced and sold after Dec. 31, 2005 (section 30B(f)(2)). Although the plug-in electric threshold is more than triple that amount, Rep. Sander Levin and his brother, Sen. Carl kevin, both Michigan Democrats, have proposed raising it to 500,000 vehicles per manufacturer (HR 500 and S 232). …