Is There a Neighborhood Electric Vehicle Tax Credit?

Government incentives, such as tax credits, are sometimes offered to encourage the adoption of environmentally friendly transportation. These programs can make purchasing vehicles like neighborhood electric vehicles (NEVs) more financially attractive. The availability and specifics of these incentives change, reflecting shifts in policy and legislative priorities.

Federal Tax Credit Status and Eligibility

The federal tax credit that applied to new qualified two- and three-wheeled plug-in electric vehicles, including NEVs, expired for vehicles acquired after December 31, 2021. If a vehicle was acquired in 2021 but not placed into service until 2022, the credit could still be claimed on the 2022 tax return.

To have qualified for this past credit, the vehicle must have been purchased new. It was required to have a gross vehicle weight rating of less than 14,000 pounds and be propelled by an electric motor drawing electricity from a battery. This battery needed a capacity of at least 2.5 kilowatt-hours and be capable of being recharged from an external source.

The vehicle also had to be manufactured primarily for use on public streets, roads, and highways. The primary purpose for acquiring the vehicle must have been for personal use, and it had to be used predominantly within the United States.

Calculating the Federal Credit Amount

The credit was equal to 10% of the vehicle’s cost, with a maximum credit of $2,500 per vehicle. The “cost” for this calculation included the sticker price but excluded separately stated charges like sales tax or registration fees.

This tax credit was nonrefundable, meaning it could reduce a taxpayer’s income tax liability to zero, but no portion of the credit is paid out as a refund. For example, if a taxpayer had a tax liability of $1,500 and qualified for a $2,500 credit, their tax bill would be reduced to zero, but they would not receive the remaining $1,000. The unused portion of the credit could not be carried forward to future tax years.

Claiming the Credit on a Prior Year Return

Taxpayers who were eligible for the credit in a prior year but failed to claim it can generally file an amended return using Form 1040-X, Amended U.S. Individual Income Tax Return. You must also complete and attach Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit. Generally, a return must be amended within three years from the date it was filed or within two years from the date the tax was paid, whichever is later.

To complete the forms, you will need the following vehicle information:

• Year, make, and model
• Vehicle Identification Number (VIN)
• Date the vehicle was placed in service
• Total cost basis of the vehicle

When completing Form 8936 for a prior year, you will use Part III for qualified NEVs. You will enter the vehicle’s cost to calculate the tentative credit amount. This amount is then carried to your Form 1040-X to adjust your tax liability.

Potential State-Level Incentives

While the federal tax credit for NEVs has expired, some state or local governments may offer their own incentives. These programs vary widely and can include tax credits, rebates, or reduced vehicle registration fees. Some states might offer a direct rebate at the time of purchase, while others provide a nonrefundable tax credit or a waiver of annual fees.

To find out if your area offers such benefits, check the official websites of your state’s Department of Revenue, Department of Transportation, or state energy office. Searching for terms like “electric vehicle rebates,” “low-speed vehicle incentives,” or “alternative fuel vehicle grants” can provide current information on eligibility and how to apply.