Greetings,

 

 

Electric Car Credits.
 
IRS has reminded taxpayers about two tax credits that may be available to taxpayers in 2009 who purchase a "neighborhood electric vehicle." In certain cases, a taxpayer may qualify to claim both the Code Sec. 30D new qualified plug-in electric drive motor vehicle credit, created by the Emergency Economic Stabilization Act of 2008 (EESA, P.L. 110-343), and the Code Sec. 30 plug-in electric vehicle credit, created by the American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5). However, a taxpayer can only claim one credit for the same vehicle.

 
Background on Code Sec. 30D electric car credit. For tax years beginning after 2008, a taxpayer can claim a credit under Code Sec. 30D for the purchase of a new qualified plug-in electric drive motor vehicle. For four-wheeled vehicles acquired in 2009, subject to a limit based on weight, the amount of the credit is the sum of: (1) $2,500; plus (2) $417 for each kilowatt hour of traction battery capacity in excess of 4 kilowatt hours. The credit amount can't exceed the limit based on gross vehicle weight rating (GVWR), as follows: $7,500 for no more than 10,000 pounds; $10,000 for more than 10,000 pounds but no more than 14,000 pounds; $12,500 for more than 14,000 pounds but no more than 26,000 pounds; and $15,000 for more than 26,000 pounds.

 
For vehicles acquired in 2009, the credit (as computed above) phases out beginning in the second calendar quarter following that in which the 250,000th plug-in electric drive motor vehicle for use in the U.S. is sold (50% credit reduction in second and third quarter; 75% in fourth and fifth quarter; 0 credit allowed thereafter).

 
While the Code Sec. 30D new qualified plug-in electric drive motor vehicle was created by EESA, ARRA modified it significantly. For vehicles bought after 2009, ARRA provides that the amount of the Code Sec. 30D credit is the sum of: (1) $2,500; plus (2) $417, in the case of a vehicle that draws propulsion energy from a battery with not less than 5 kilowatt hours of capacity, plus $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours. The amount of the credit so computed is limited to $5,000. The credit isn't available for low speed plug-in vehicles and for plug-in vehicles weighing 14,000 pounds or more. The credit, unlike under pre-2009 ARRA law, isn't subject to a termination date.  However, the credit amount reduces after 2009.

Background on Code Sec. 30 electric car credit. For vehicles bought after Feb. 17, 2009 and before 2012, a taxpayer can claim a 10% credit on the purchase of a electric drive low-speed vehicles, motorcycles, and three-wheeled vehicles. The maximum credit for these vehicles is $2,500. To qualify, a vehicle must be either a low-speed vehicle that is propelled to a significant extent by a rechargeable battery with a capacity of at least 4 kilowatt hours or be a two- or three-wheeled vehicle that is propelled to a significant extent by a rechargeable battery with a capacity of at least 2.5 kilowatt hours. For a vehicle acquired after Feb. 17, 2009 and before 2010, no credit is allowed if a Code Sec. 30D credit is allowed for the vehicle. Note: these are not "hybrids."

Among the requirements a post-2009 qualifying vehicle must meet: it must be treated as a motor vehicle for purposes of title II of the Clean Air Act; it must have a gross vehicle weight rating of less than 14,000 pounds; and it must be propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of at least 4 kilowatt hours, and is capable of being recharged from an external source of electricity. ARRA also reduces the 250,000 vehicle limitation in the phaseout provision to 200,000.

 
Credit reminder. IR 2009-45 advises taxpayers that during 2009, low-speed, four-wheeled vehicles manufactured primarily for use on public streets, roads and highways (commonly referred to as "neighborhood electric vehicles") may qualify for both the Code Sec. 30D EESA credit and, if purchased after Feb. 17, 2009, the ARRA Code Sec. 30 credit for low-speed electric vehicles. It cautions that a taxpayer may not claim both credits for the same vehicle. It further cautions that some vehicles manufactured primarily for off-road use, such as for use on a golf course, do not qualify for either credit.

IR 2009-45 notes that IRS is working on guidance on certification procedures for both of these credits.

 
Sales Tax Deduction.
 
ARRA provides an additional incentive for buying a new vehicle. For purchases on or after Feb. 17, 2009 and before Jan. 1, 2010, ARRA provides a deduction for state and local sales and excise taxes paid on the purchase of a new car (not just a hybrid), light truck, motor home or motorcycle. The deduction is available regardless of whether or not a taxpayer itemizes deductions on his return. It is limited to the tax on up to $49,500 of the purchase price of an eligible motor vehicle, and phases out for taxpayers with modified adjusted gross income between $125,000 and $135,000 (between $250,000 and $260,000 for joint filers).  North Carolina collects a 3% use tax on new car purchases.  For example, a $25,000 car would result in a $750 tax.