Tax Credit Phase Out



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Sunday March 4, 2018 – Tax Credit Phase Out – Normally for the first blog of the month I would report on Sales for plug-in vehicles but unfortunately some manufacturers have decided to stop breaking out sales numbers for plug-in vehicles.  This means that the actual number of sales will take longer to estimate and so there will be a delay in getting the numbers to report.  I thought I might take this time to review the Federal tax credit as it seems that some manufactures may begin the phase out period later this year. 


The Federal tax credit applies to plug-in cars with a battery capacity of at least 4KWhrs.  Tax credits range from $2,500 and increase by $417 for each additional kilowatt hour of capacity up to a maximum of $7,500.  This sum applies to the first 200,000 cars sold by each manufacturer after which the company enters a phase out period of 1 year.


The rules of the phase out period, per the IRS web site are as follows:


"The qualified plug-in electric drive motor vehicle credit phases out for a manufacturer’s vehicles over the one-year period beginning with the second calendar quarter after the calendar quarter in which at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2009) (“phase-out period”). Qualifying vehicles manufactured by that manufacturer are eligible for 50 percent of the credit if acquired in the first two quarters of the phase-out period and 25 percent of the credit if acquired in the third or fourth quarter of the phase-out period. Vehicles manufactured by that manufacturer are not eligible for a credit if acquired after the phase-out period."


So far no manufacturer has sold 200,000 vehicles but that is going to change this year.  Both Tesla and General Motors appear to be close enough that they will both hit the magical 200,000 number some time in the 3rd quarter of this year.  That will mean that these two companies will enter the phase out period. If my interpretation of the IRS rules are correct both companies should be OK for 2018 but will see reduced tax credits for 2019 and none for 2020.


First let me say that I am not a tax expert so you should check with your tax advisor before you purchase a vehicle.


The IRS document says that the tax credit will begin to phase out on the second calendar quarter after the calendar quarter when they hit the 200,000 mark.  Let's assume that Tesla hits 200,000 in August 2018.  August falls in the third calendar quarter of 2018.  The first calendar quarter after that would be the fourth quarter of 2018 and for this quarter Tesla buyers would continue to received the full tax credit of $7,500.  The second calendar quarter would be first quarter of 2019 and for this quarter and the following quarter Tesla buyers would receive 50% of the tax credit which is $3,750.  For the final 2 quarters of 2019 Tesla buyers would receive 25% of the full tax credit which is $1,875.


The story at GM is probably going to be the same as they too are expected to hit 200,000 cars in the second quarter of 2018.  Nissan is probably going to be next but is unlikely to hit the 200,000 mark until some time in 2019 depending on how well the new Leaf sells.  The longer range leaf, due out late this year, will probably benefit from the reduced tax credit for the Chevy Bolt.


It is uncertain how the drop in tax credit will impact sales of vehicles like the Chevy Bolt or the Tesla Model 3 but this may prove to be a boon for some of their competitors who are getting ready to launch their own high range lower cost plug-in vehicles and will have the tax credit to provided competitive advantage.


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