This Is the Car You’ll Wish You Bought at Tax Time

SMITH BRAIN TRUST – In the market for a new car in 2019? Caught between the choice of a traditional combustion engine or a plug-in hybrid or full electric vehicle? Did you know that the latter two choices might be eligible for a tax credit on your 2019 tax return?

Then again, they might not, says Samuel Handwerger, a lecturer in the accounting and information assurance department at the University of Maryland’s Robert H. Smith School of Business.

Tax credits of up to $7,500 against the federal taxes you owe this year are available if you buy certain new vehicles meeting certain standards, Handwerger says. The credit isn’t handed out by the dealer, but you claim it on your tax return. “And you can bet the dealer will know whether the car you are buying will qualify,” Handwerger says. “Nevertheless, go to IRS Form 8936 and its instructions to be sure.”

The credits have made headlines recently because they run out when a manufacturer sells more than 200,000 of specific vehicles. "That is exactly what is happening to Tesla and GM,” Handwerger says.

For Tesla buyers, the credit drops to $3,750 for plug-ins bought in the first half of this year, and drops again to $1,875 for the second half. After 2019, the credit is zero.

Buyers of GM plug-in vehicles get a bit more time, he adds. The credit drops to $3,750 on April 1 and to $1,875 on Oct. 1. The last day to qualify for a federal tax credit on the purchase of a GM plug-in is March 31, 2020.

“Nissan is next on the list, having registered sales of about 128,000 qualifying vehicles at the end of 2018,” Handwerger says.

GM appealed to Congress to extend the credit beyond the 200,000 sales limit, but the prospects for an extension remain unclear.

“Regardless, how much of the credit you may take depends on your tax liability,” Handwerger notes, “so this is a matter to plan with your tax professional.”

Retirees have been known to deliberately create tax liability from their retirement accounts to get more of the credit, he adds.

He suggests also looking into the state tax laws where you live when you’re shopping for new wheels. Some states, such as Maryland, offer additional tax incentives for the purchase of plug-in electric hybrid vehicles and their full-on electric cousins.