Why Are Tesla Electric Vehicles Not Eligible for the Tax Credit?

One of the incentives for buying an electric vehicle is the federal tax credit. Unfortunately, Tesla vehicles are no longer eligible for this perk. Why is Tesla’s lineup no longer eligible, and which manufacturers still receive tax credits? If you act quickly, the Ford Mustang Mach-E and Volkswagen ID.4 are still eligible for the full credit.

What is the federal tax credit for electric vehicles?

A Tesla Model 3 sits on the assembly line
Why are Tesla automobiles no longer eligible for the electric vehicle tax credit? | Xinhua/Ding Ting via Getty Images

According to the U.S. Department of Energy, “cars purchased new in or after 2010 may be eligible for a federal income tax credit of up to $7,500.” Not everyone will get $7,5000. However, the credit will be based on a few stipulations, like the battery capacity.

In addition to the federal tax credit, many states will have other monetary incentives. Similarly, there are a variety of local tax credits or rebates you can apply for as well. You can check your state’s available credits through the U.S. Department of Energy State Laws and Incentives page.

Kissimmee, Florida, has an All-Electric Vehicle (EV) and Electric Vehicle Supply Equipment (EVSE) rebate for those who purchase an electric car and install a charger at home. A licensed electrical contractor must install the charger. It must meet some other state-mandated requirements as well.

You can check how much your vehicle is eligible for on the website above. Most Tesla cars purchased after December 31, 2019, do not qualify for the credit. Similarly, some vehicles from Cadillac and Chevrolet do not qualify due to the production numbers.

In addition, the tax credit was not eligible for used cars. The credit would only apply to whoever purchased the car new.

Why does Tesla no longer qualify?

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To put it simply: Tesla was too popular. All of the Tesla lineup models, including the Model S, Model X, Model 3, and Roadster, have exceeded the limit. For instance, once Tesla sold 200,000 vehicles, no matter which model it was, the credit was phased out.

Initially, the tax credit was cut in half, from $7,500 down to $3,750. It was cut in half again to $1,875.

According to Tax Warriors, the government automatically cut the credit in half in the second quarter of 2018. The second phase began in 2019. This ran through the end of June 2019. The credit was further reduced from July through the end of 2019. The credit reached $0 by the end of January 2020.

In conclusion, the purpose of this credit is to give buyers a bit of a tax break and encourage the switch to all-electric. There are still a variety of brands that are available for the credit.

As we progress toward a more electric future, this tax credit may come back. It is also possible that the credit comes back in a different form. The government is currently deciding on some updated terms.

What vehicles and brands qualify?

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The 2021 RAV4 Prime plug-in hybrid still has the full $7,500 tax credit. The 2021 Volkswagen ID.4 First, Pro, and Pro S versions qualify. The 2019 and 2021 Audi e-Tron also qualifies.

A few 2021 Mercedes Benz models like the X5 xDrive45e, 330e, and the 330e xDrive qualify for the credit. The 330e has a reduced credit of $5,836. The X5 xDrive is the full $7,500.

In addition, the 2021 Ford Mustang Mach-E in all platforms is still eligible for the $7,500 credit. This includes the Select, Premium, California Route 1, and First Edition trims.