There are a number of potential tax incentives available to you when purchasing your Tesla depending on which model you choose and where you live. I’m no tax advisor, so you should check everything with a professional, but here’s an overview of the tax incentives available. Also, this information applies to US Residents only.
Federal Tax Incentives
With my 2014 purchase of my Tesla Model S I got a $7,500 Federal Tax Credit that has already been put to good use, but what’s the rule and how does that work?
The actual rules can be found in Internal Revenue Code Section 30D which is titled “Plug-In Electric Drive Vehicle Credit.” The key piece reads as follows:
“For vehicles acquired after December 31, 2009, the credit is equal to $2,500 plus, for a vehicle which draws propulsion energy from a battery with at least 5 kilowatt hours of capacity, $417, plus an additional $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours. The total amount of the credit allowed for a vehicle is limited to $7,500.”
Since the Model S has a minimum of 60kW, with their crazy formula above all Tesla’s max out the Section 30D credit at $7,500. Too bad they have that cap in there!
Note that the credit starts to disappear as the production quantities increase. After 200,000 vehicles, the credit starts to go down. We’re a ways off of that for Tesla and the Tesla batteries are huge, so it will be interesting to see what happens to the credit situation when Tesla crosses the 200,000 car mark.
This Tax Credit only applies to new car purchases (original owner) and is a tax credit, not a rebate or refund or anything like that.
There are specific rules around when you’re considered to have taken delivery etc (which tax year) so if you’re one of the lucky people that took delivery of a Model X for Christmas, be sure to read that code carefully!
State Tax Incentives
In addition to the Federal Tax Credit, some states also offer state tax credits for EVs. The states below have EV incentives right now:
- California – $2,500
- Delaware – $2,200
- Colorado – $6,000
- Louisiana – $8,000
- Massachusetts – $2,500
- Maryland – $3,000
- Pennsylvania – $2,000
- Tennessee – $2,500
- Utah – $1,500
Note that each one of these programs can have its own nuances. There are minimum ownership periods (3 years in Massachusetts), income caps ($500K for joint filers in CA), etc. Before you count your money, check the rules for your specific state and make sure you qualify.
When I purchased my Model S in 2014 the current MA state tax credit was no longer available. Since then its been put back in place again. Bad timing on my part for sure!
You may have heard about a “Hummer Tax Loophole”, but what is that and does it apply to you?
This is about Tax Section 179 and the ability for businesses to take deductions for equipment (and other stuff) that are put into service. For vehicles, there’s a specific section of the rules. Generally for cars that you use for 50% or more in your business you can deduct up to $11,060, and a little bit more for trucks.
SUVs or Crossover Vehicles with GVWR above 6,000lbs get an even larger deduction of $25,000. This is the “Hummer Tax Loophole” as the Hummer weighed in at somewhere around 6,500 pounds. The Hummer isn’t the only SUV that crosses this threshold; others like the Chevy Tahoe and Cadillac Escalade meet the rule. None, however, are nearly as cool as the Tesla Model X SUV.
Here we must take a slight detour to cover Curb Weight versus Gross Vehicle Weight. Curb weight is basically the car empty and GVWR is the car with people, equipment etc. The Model S has a curb weight of 5,334 pounds, but it turns out that the Model X GVWR is 6,768 pounds and so qualifies for this deduction.
So, if you buy a Model X, and use it 50% or more for business you could get the Federal and State tax credits and deduct up to $25,000 in depreciation in the year you purchase it. This can effectively lower the price by $35,000 for businesses in states like Massachusetts where I live. Businesses would also be deducting first year depreciation too.
Note that the Section 179 deduction applies to both new and used vehicles, although I think we’ll see few used Model X’s in 2016.
Watch for some cool business advertising on Model X’s in the coming year!
Tesla Owner said:
You missed a very important point. The federal tax credit only works with “income” not capital gains. So for those of us fortunate enough not to work, we have to play the income game with our investments, which is not as easy as it may sound.
Great point! I have not yet reached that stage so didnt consider it. Thanks for the feedback.
Rex Nar said:
Oregon just passed a $2500 credit too.