How to Claim the Colorado EV Tax Credit on Your Tax Return

Electric vehicle (EV) incentives help make buying or leasing a car more affordable, and Colorado offers one of the most generous state tax credits in the U.S. This credit directly reduces state income tax liability, potentially saving thousands of dollars. However, claiming it requires following specific steps to ensure you receive the full benefit.

Eligibility Requirements

Colorado’s EV tax credit applies to both new and used electric vehicles, but not all purchases qualify. Fully electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs) are eligible, while traditional hybrids and non-plug-in models are not. The credit amount depends on the year of purchase and whether the vehicle is new or used. In 2024, new EVs can receive up to $5,000 in state tax credits, while used EVs typically qualify for around $2,500.

Both purchases and leases can qualify, but leased vehicles must have a minimum lease term of two years. If a dealership applies the credit at the point of sale, the buyer cannot claim it again on their tax return. The credit is also non-refundable, meaning it can only reduce state tax liability to zero—it does not result in a cash refund if the credit exceeds what is owed.

Purchase or Lease Steps

How the credit is applied depends on whether the EV is purchased or leased. Buyers claim the credit when filing state taxes, while lessees typically benefit from the credit upfront through lower monthly payments, as dealerships or leasing companies claim it instead.

To ensure the credit is properly applied, confirm with the dealership how they handle state incentives. Some dealers automatically factor the credit into lease terms, while others may not, leaving room for negotiation. If leasing, review the lease agreement to verify the credit has been incorporated into pricing. For purchases, ensure the vehicle qualifies under the latest state guidelines, as not all EV models meet requirements.

Credit amounts can change based on legislative updates, so check the most recent state tax guidance before finalizing a deal. Some dealerships may also offer promotions that stack with state incentives, providing additional savings.

Documentation You Need

Accurate records are essential when claiming the Colorado EV tax credit. The most important document is the purchase or lease agreement, which must include the vehicle identification number (VIN), date of acquisition, and sale price. If the credit was applied at the point of sale, the contract should explicitly state this to prevent duplicate claims.

Colorado also requires a Manufacturer’s Certification of Compliance, verifying that the vehicle meets state eligibility requirements. This document is typically provided by the dealership or manufacturer. Without it, the state may reject the tax credit claim. If the vehicle was leased, a copy of the lease agreement must be submitted to confirm the minimum lease term.

For businesses or individuals claiming the credit on multiple vehicles, maintaining a detailed record of each car’s use is recommended. The state may request additional documentation to confirm the EVs are being used in Colorado and not immediately resold or relocated. Keeping mileage logs, insurance records, and registration documents can help substantiate compliance if an audit occurs.

Filing on Your Tax Return

Claiming the Colorado EV tax credit requires completing the Colorado Innovative Motor Vehicle Credit Schedule (DR 0617) and attaching it to your Colorado Individual Income Tax Return (DR 0104) or Business Income Tax Return (DR 0112). DR 0617 requires details such as the make, model, and VIN of the vehicle, as well as the credit amount based on the applicable tax year’s incentive structure. Errors or missing information can trigger a review by the Colorado Department of Revenue.

Once DR 0617 is completed, the credit amount is transferred to the appropriate line on your state tax return. If filing electronically, most tax software platforms support this credit and guide users through the necessary inputs. For paper returns, attach all supporting documentation, including copies of the purchase or lease agreement and Manufacturer’s Certification of Compliance, to avoid processing delays. If multiple qualifying vehicles were purchased in the same year, a separate DR 0617 must be completed for each vehicle.

Handling Adjustments or Errors

Mistakes can occur when claiming the Colorado EV tax credit due to miscalculations, missing documentation, or incorrect entries. If the Colorado Department of Revenue identifies an issue, they may request additional information. Responding promptly with the necessary corrections or supporting documents can help resolve the matter.

If an error is discovered after filing, an amended return must be submitted using Form DR 0104X for individuals or DR 0112X for businesses. This requires recalculating tax liability and including revised versions of any supporting forms, such as DR 0617. If the credit was denied due to insufficient documentation, providing additional proof—such as a corrected purchase agreement or manufacturer certification—can often result in approval. If the credit amount was miscalculated, adjusting the figures and submitting a clear explanation can prevent further scrutiny. Taxpayers experiencing disputes over eligibility or credit application may benefit from consulting a tax professional to ensure compliance with Colorado’s tax regulations.