The Tesla Tax Credit Explained


The Tesla Tax Credit Explained 2020

Receiving a federal tax credit has been one of the most advertised perks when buying a Tesla for most of the past decade. As the company grows, though, the IRS has been adjusting that credit.

Tesla sold its 200,000th car in July 2018, triggering a phase-out schedule set by the IRS. The phase-out finished at the beginning of 2020.

Take DeliveryCredit Amount
Up to 12/31/2018100% ($7,500)
1/1/2019 – 6/30/201950% ($3,750)
7/1/2019 – 12/31/201925% ($1,875)
1/1/2020 and after0% ($0)

Unfortunately, if you took delivery of a Tesla in 2020, you do not qualify for a Federal tax credit. As if 2020 wasn’t enough of a buzzkill already… However, there are still many state and local incentives available. Let’s discuss both the federal and state incentives for new Tesla owners.

The Federal Tax Credit Phase-Out And Tesla

At the end of 2009, the U.S. government decided it wanted to help out the environment by helping people buy electric cars. They did this by instituting a tax credit to help consumers offset the higher cost of an electric vehicle and help manufacturers like Tesla sell their cars.

Everybody benefits from a cleaner environment, and so the government incentivized the electric vehicle market because it saw an innovative solution to transportation emissions.

The tax credit was never meant to be permanent. It was intended to be a temporary “boost” to the industry, and was set up in such a way that would help auto manufacturers like Tesla establish their vehicles and stand on their own two feet. At that point, the tax credit would be phased out.

The people who came up with the incentive (labeled IRC 30D for those looking to dissect some tax code) decided on a seemingly arbitrary phase-out schedule. Although I’m sure way, more thought went into it than I’m giving credit for.

The trigger for the phase-out is Tesla’s 200,000th cumulative car sale.  Note that the counter for that number started on December 31st, 2009. Technically they were making Roadsters in 2008, and though they are not counted in that 200,000 threshold, they were still eligible for a tax credit.

Simply put, the clock started ticking at the beginning of 2010. Fast forward to July of 2018, and some lucky duck is the 200,000th owner of a new Tesla vehicle. This does not mean that the tax incentive shut off abruptly; that’s not how a phase-out works. 

The first round of the phase out is documented as follows by the IRS.

“Taxpayers may claim the full amount of the credit up to the end of the first quarter after the quarter in which the manufacturer records its sale of the 200,000th qualified vehicle.”

So, putting Tesla in context, July 2018 is quarter 3, and the end of the following quarter (Q4) is 12/31/2018. So, as mentioned in the chart above, buyers who took delivery before or up to 12/31/2018 were still eligible for the full federal tax credit, which was $7,500 in Tesla’s case.

The IRS then goes on to define the next two phases:

“For the second and third calendar quarters, taxpayers may claim 50% of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25% of the credit. No credit is allowed after the fifth quarter.”

The second and third quarters after the 200,000 mark would then be Q1 and Q2 of 2019. Making the federal tax credit available to Tesla buyers between January 1st and June 30th 2019, half of the original amount… $3,750. And in the next two quarters after that, it’s reduced to 25%, or $1,875.

The phase-out is complete as of January 1st 2020, i.e., no more federal tax credit for Tesla purchases.

It should be noted that the IRS considers the date of the title transfer or the “take delivery” date as the date that counts for this phase-out schedule. So if you pre-ordered in November 2019 but received your Tesla in February 2020, you are not eligible for the federal credit.

Further, the credit can only be used to offset tax liability in the current tax year, and it is non-refundable. This means two things:

  • If you bought a tesla in 2018, you must apply the credit to your 2018 tax filing. You cannot carry it forward into 2019 or 2020.
  • If you did claim your tax credit, it’s non-refundable, meaning that it cannot exceed your tax liability that year.

The non-refundable part got me; here’s an example. Say I qualified for $3,750 because I purchased in the first half of 2019, but my tax liability for that year was $2,000. I could only apply $2,000 of my $3,750 credit to my 2019 taxes.  Now, since the credit is non-refundable, I lose the unused $1,750 surplus credit. That is, I was not able to carry it into my 2020 filings.

As with anything related to the IRS and tax code, there’s never one, direct, simple answer. But basically, what the above text boils down to is this:

If you purchased a Tesla in 2020, you are not eligible for a Federal tax credit.

So How Do You Get A Tesla Tax Credit In 2020?

Wait, didn’t I just say there is no tax credit in 2020? Federally, no, but there are still plenty of state incentives up for grabs. You can also snag an incentive for installing an E.V. charger in your home. More on that later; first, some details on the state incentives for Tesla buyers.

California

The state of California offers rebates on the Model 3 and the Model Y. It’s adjusted based on your income, and can either be $2,000 or up to $4,500. They also offer $5,000 grants to eligible buyers, again based on household income.

Colorado

Colorado is still offering state tax credits, which vary in amount depending on whether you buy or lease.

  • $4,000 credit for purchase
  • $2,000 credit for lease

Connecticut

Connecticut offers a $1,500 rebate on models with a base price under $42,000. There are also other perks available to Connecticut Tesla owners, such as:

  • Discounted registration fees
  • Exemption from state emissions testing (no emissions, duh)
  • Free street parking in the City of New Haven

Delaware

In Delaware there is a $2,500 rebate available for Teslas when the purchase price is under $60,000. They also offer a $500 rebate when purchasing a home charging station.

Florida

The Jacksonville Electric Authority offers a $1,000 rebate for the purchase or lease of electric vehicles.

Hawaii

While there are no rebates or tax credits here, there are some perks that Tesla owners can enjoy.

  • HOV lane access
  • Reduced electricity rates
  • Free parking
  • Emissions test exemption

Idaho

As with Hawaii, no tax credits or rebates, but Tesla owners are exempt from the hassle of state vehicle inspections.

Illinois

Illinois does not offer rebates or tax credits either, but Tesla owners are exempt from state emissions testing and pay a reduced vehicle registration fee.

Indiana

Tesla owners and Indiana Power & Light customers receive reduced electricity rates for electric vehicle charging.

Louisiana

The state of Louisiana is offering a $2,500 state tax credit for the purchase of a Tesla.

Maine

Mainers who purchase new electric vehicles with a price under $50,000 will receive a $2,000 rebate.

Maryland

No incentives for the purchase of an E.V. in Maryland, although there is still an incentive to install a home charger. A $700 rebate, to be exact. Maryland also offers other perks such as:

  • HOV lane access
  • Emissions testing exemption

Massachusetts

New Englanders in the state of Massachusetts can claim a $2,500 rebate if they purchase a Tesla for under $50,000.

Nebraska

The Lincoln Electric company offers a $4,500 rebate for the purchase or lease of a Tesla

Nevada

Nevada doesn’t offer much more than a reduced electric rate for E.V. charging.

New Jersey

The Garden State offers a $5,000 rebate on the purchase or lease of a new E.V. with a price tag at or below $55,000. Tesla owners with an EZ-Pass account will also benefit from a 10% discount on off peak toll fees on the Turnpike and the Parkway.

New York

New Yorkers looking to buy a Tesla in 2020 can receive a $500 rebate for cars over $60,000 and a $2,000 rebate for cars under that same $60,000 threshold. They would also be exempt from state emissions testing.

North Carolina

The state of North Carolina doesn’t offer anything more than HOV lane access and exemption from state emissions testing. Its sister state to the south doesn’t have any incentives for Tesla buyers or owners.

Oregon

The state of Oregon offers up to $5,000 in rebates for Tesla buyers. Everyone gets a $2,500 rebate, and qualifying buyers are eligible for another $2,500 if they fall under a certain income level.

Depending on which city you live in, it’s likely you’ll qualify for a rebate when you install a home charging station as well.

Rhode Island

Lil’ Rhodey doesn’t do much for Tesla owners. They provide exemption from state emissions testing, and residents of Warren, RI are eligible for a $100 excise tax exemption.

Texas

Texans living in Austin, Houston, or Dallas may qualify for the AirCheckTexas program, which could get them a $3,500 rebate for a qualifying Tesla purchase.

Utah

No rebates or tax incentives in Utah, but Tesla owners need not worry about paying parking meters. They can also charge for free at public charging stations.

Vermont

In Vermont, the state government offers a variable rebate depending on income level, up to $5,000.

The Green Mountain Power company also offers up to $2,500 in rebates for purchasers of an electric car.

Virginia

Virginia Dominion Power customers are eligible for reduced electric rates if they own a Tesla. 

Washington

The state of Washington offers reduced sales tax on the purchase of a new electric vehicle

Washington D.C.

If you live in the capital, you’ll receive a few benefits as a Tesla owner:

  • Exempt from excise tax
  • Discounted vehicle registration fees
  • Up to a $1,000 tax credit to subsidize the cost of a home charging station

Wisconsin

Alliant Energy customers are eligible for a $500 rebate when they install a home charging station.

States Without Credits Or Rebates

Here’s a list of states that do not offer any incentives to purchase a Tesla electric vehicle:

  • Alabama
  • Alaska
  • Arizona
  • Arkansas
  • Georgia
  • Iowa
  • Kansas
  • Kentucky
  • Mississippi
  • Montana
  • New Hampshire
  • New Mexico
  • North Dakota
  • Ohio
  • Oklahoma
  • Pennsylvania
  • South Carolina
  • South Dakota
  • Tennessee
  • West Virginia

So, while the lucrative federal tax incentive on Tesla cars has vanished, there are still state and local incentives out there. And electric vehicles are not the only products that come with the incentive.

Other Tesla Products Still Offer Federal Tax Incentives In 2020

Electric vehicles are not the only clean energy technology that the U.S. government offers tax credits on, and electric vehicles are not the only product that Tesla makes. Electric vehicle chargers are available for installation in owners’ garages and driveways. Additionally, Tesla has also been manufacturing home energy products  like solar panels and home backup batteries since their merge with Solar City.

There are still tax incentives up for grabs on these Tesla products:

  • E.V. wall charger
  • Solar panels
  • Solar roofing
  • Powerwall (when installed with or after solar)

When taking the long view, it is mutually beneficial for the population as a whole to switch to zero emission energy. Tesla knows this, and the U.S. Government knows this, which is why these incentives exist for more than just electric cars. 

Install A Tesla Wall Charger In Your Home

While many states are no longer offering rebates or tax credits on Tesla vehicles, many energy companies are offering rebates on the installation of energy efficient home chargers. The U.S. government is still offering a $1,000 tax credit on qualified home charger installations.

If you own a Tesla car and have not already done so, install a home wall charger before December 31st, 2020, to become eligible for this $1,000 federal tax credit. 

All Tesla vehicles come standard with a mobile charging system, but the wall connector is an efficient way to charge your car overnight. It can be installed for outdoor use as well, so no running extension cords through your window.

The wall charger costs $500 and can be self-installed for those so inclined. At that price, the $1,000 tax credit means the government is essentially paying you 500 bucks to get one of these. Pretty much a no-brainer.

Install Tesla Solar Panels on Your Roof

If you install the Tesla Photovoltaic (P.V.) panels on your home’s roof and pay cash for them, you will be eligible for the Federal Investment Tac Credit (ITC). Now, it’s important to note that this credit is also currently in a phase out, following the schedule below:

Tax YearPercentage of Full Credit
201930%
202026%
202122%

The tax credit is set to expire in 2022 unless Congress decides to renew it.

The full credit amount is dependent on the size of your solar project and ultimately, how much it costs you. There is no maximum amount at which it caps out.  So if you install solar panels in 2020, your tax credit will be 22% of the installation bill charged by Tesla.

Expenses included in this number are:

  • The solar panels themselves
  • Any contract labor for setup and installation
  • Sales taxes on eligible items
  • Energy storage system connected to the solar panels (this is where you can piggyback the Powerwall)

So, here’s a quick example.

It’s 2020, you’ve just installed solar panels and paid for the items on the list above. The total comes to $18,000, and you paid cash (no leasing). The tax credit you’re eligible for is:

$18,000 x 0.26 = $4,680

Again, there is no maximum amount either, so the bigger the project, the bigger the tax credit. It’s a flat rate percentage.

There are also state tax credits available that work in the same way, but it is recommended to consult with a tax professional about the best way to claim your state and federal credits. Depending on the state you live in, reducing your state taxes will only increase your federal taxes. Best bet is to call a pro when claiming your Tesla solar tax incentives.

You can also claim a federal tax credit if you took out a loan to purchase your solar panels. Consider the same $18,000 example above, but instead of paying cash, you financed the purchase. The loan assumes a pre-payment within the first 18 months after installation. That pre-payment is equal to the federal credit of $4,680. 

The credit is spread out across the first year and a half of your loan, therefore it can be applied to your loan payments over 18 months instead of to a one-time cash purchase.

There are no federal tax incentives for leasing solar panels from Tesla.

Install A Tesla Solar Roof

Don’t like the way solar panels look? Still, want a federal tax credit? Consider Tesla’s solar roofing option instead.

The same federal tax incentives from above apply. 26% of the cost in 2020, and 22% in 2021. Note that construction of the roof must begin before December 31st of that year to claim the credit. So if you started on December 29th, 2020 but didn’t finish until January 12th 2021, you’d still be eligible for the 26% credit.

Another detail to consider is that only a portion of your roof will be eligible for this incentive. That is based on which sections are the ones producing the energy. You’ll definitely need to consult with a tax professional when you receive the estimated eligibility information from Tesla. This is the info that needs to go on your IRS form 5695.

Install A Tesla Powerwall

As mentioned earlier, the Tesla Powerwall is also available for the Federal ITC program. This system is an elegant home battery that reduces your electric bill if paired with solar and keeps the lights on in the event of a grid outage. They are not cheap, and as such, the government is helping buyers out.

The same percentages as the ones for the solar panels and solar roof apply to the powerwall. However, there is an additional eligibility caveat to note.

Installing a Powerwall by itself or in a home without existing solar panels does not qualify it for the Federal ITC incentive.

So, there are two ways to qualify:

  • Install the Powerwall system at the same time you are installing solar panels or a solar roof.
  • Install the Powerwall after you have already installed solar, and integrate it into your existing system.

If you install a Powerwall first and then later install solar, the Powerwall will not be considered an eligible expense for the tax credit.

There is also a rebate program for California residents known as the Self-Generation Incentive Program (SGIP).

If you are installing a Powerwall in your California residence, you can apply for a rebate when purchasing a powerwall and hiring a Tesla certified installer. There are a limited number of rebates available, being rolled out in steps. The current step has a $2,900 rebate available for SCE or SoCal Gas customers.

The next step after that is set to open before the end of 2020, and recipients of the SGIP rebate would get $2,320. Once that step is fully subscribed, the last available one will be $1,740.

All electric is the way of the future, and it’s picking up speed in the home and automotive industries thanks to these incentives.

How Does A Tax Credit Work?

So, if you’re wondering what all the fuss is about regarding federal and state tax credits for electric cars, a brief explanation of how they work may explain why they incentivize people to buy electric.

Back when you could get the full $7,500 credit, it essentially would wipe away any tax liability you had that year. For example, if you were slated to owe $7,000 in taxes that year (your tax liability), the credit would wipe that out, and you’d end up owing $0 (because it’s non-refundable).

If you had your taxes deducted from payroll, the credit could be used as a tool to boost your return because it would lower your taxable income.

Nobody likes paying taxes. Therefore, incentives that can get people out of it are an effective tool used by the government to steer the economy… in this case, towards a lower impact on the environment.

How To Claim Your Tax Credit

The best way to claim your tax credit on a Tesla purchase is by consulting with your CPA. They will know the ins and outs of the federal and state tax incentives in detail, and be able to fit them into your unique, individual tax situation.

As we’ve stated before, there is no federal tax credit for Tesla purchases in 2020, but it’s possible to claim federal incentives for home energy systems.

If you do your taxes yourself, you’ll need to file the IRS form 5695 with your standard 1040 tax filing.  The IRS provides instructions for which information and documents are required to fill out this form. It requires pretty straightforward information like:

  • Your address
  • A breakdown of the qualified solar expenses you had installed.

It’s definitely worth looking over this form before installing your solar energy system. It will give you a clear view of what information and documents you need from Tesla and the contractor hired to install it. Tesla and Tesla certified installers are also knowledgeable about the tax incentives and will likely help you along the way.  

However, they are not tax professionals, and it’s best to consult with a CPA.

Tax Credits Are Still Available On Other EVs

Tesla automobiles are arguably the most attractive electric vehicle option on the market, as is evident by them being the first to hit the 200,000 unit mark and start phasing out the tax credit. So, chances are that is not the dealbreaker for many Tesla buyers. More of a perk that is no longer available.

If you’re in the market for an E.V. and are not loyal to the Tesla brand, there are many other E.V. options with increasing availability. Their manufacturers have not yet hit the 200,000 mark, so the full tax credit (based on battery power) is still available. The IRS lists incentives for all E.V. manufacturers on their site.

Say Goodbye to The Tesla EV Federal Tax Credit

Long story short, the tax credits put into place by the U.S. government have done their job. They motivated buyers to make the switch to electric while helping Tesla grow as an automotive manufacturer. We’ll see what the next chapter of Tesla looks like post tax credit. It appears that the loss of this credit will put pressure on them to lower the cost of their cars.

If you’re still looking for ways to save money when purchasing a Tesla, you can still get 1000 Free Supercharger Miles by using a Tesla referral link from another Tesla owner.

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Greg

Hi, I'm Greg. My daily driver is a Tesla Model 3 Performance. I've learned a ton about Teslas from hands-on experience and this is the site where I share everything I've learned.

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