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PHOTO CAPTION: 2010 Ford Fusion Hybrid will qualify for $3,400 federal tax credit.

Senate Finance Committee Proposes $10,000 Electric Car Tax Credit

Low-speed and three-wheeled electric vehicles also would be allowed a maximum of $4,000 in federal tax credits.

Published: 30-Jan-2009

The Senate Finance Committee is proposing to raise the allowable tax credit on soon-to-appear plug-in hybrid vehicles by an additional $2,500. The relevant part of the proposed changes is published below.

The proposed change would raise the allowable credit on the purchase of vehicles like the Chevrolet Volt and Fisker Karma from a maximum of $7,500 to $10,000 on vehicles weighing less than 10,000 pounds. The proposal also raises the allowable quota from 250,000 vehicles to 500,000 vehicles, at which time the tax credits begin to be reduced.

The proposal also impacts low-speed electric vehicles, as well as three-wheeled EVs like Aptera's e2 electric commuter. These vehicles will qualify for a 10 percent tax credit up to a maximum of $4,000.

AMERICAN RECOVERY AND REINVESTMENT TAX ACT OF 2009

2. Modification of the alternative motor vehicle credit and the plug-in electric drive motor vehicle credit

Present Law
A credit is available for each qualified plug-in electric drive motor vehicle placed in service. A qualified plug-in electric drive motor vehicle is a motor vehicle that has at least four wheels, is manufactured for use on public roads, meets certain emissions standards (except for certain heavy vehicles), draws propulsion using a traction battery with at least four kilowatthours of capacity, and is capable of being recharged from an external source of electricity.

The base amount of the plug-in electric drive motor vehicle credit is $2,500, plus another $417 for each kilowatt-hour of battery capacity in excess of four kilowatt-hours. The maximum credit for qualified vehicles weighing 10,000 pounds or less is $7,500. This maximum amount increases to $10,000 for vehicles weighing more than 10,000 pounds but not more than 14,000 pounds, to $12,500 for vehicles weighing more than 14,000 pounds but not more than 26,000 pounds, and to $15,000 for vehicle weighing more than 26,000 pounds.

In general, the credit is available to the vehicle owner, including the lessor of a vehicle subject to lease. If the qualified vehicle is used by certain tax-exempt organizations, governments, or foreign persons and is not subject to a lease, the seller of the vehicle may claim the credit so long as the seller clearly discloses to the user in a document the amount that is allowable as a credit. A vehicle must be used predominantly in the United States to qualify for the credit.

Once a total of 250,000 credit-eligible vehicles have been sold for use in the United States, the credit phases out over four calendar quarters. The phaseout period begins in the second calendar quarter following the quarter during which the vehicle cap has been reached. Taxpayers may claim one-half of the otherwise allowable credit during the first two calendar quarters of the phaseout period and twenty-five percent of the otherwise allowable credit during the next two quarters. After this, no credit is available. Regardless of the phase-out limitation, no credit is available for vehicles purchased after 2014.

The basis of any qualified vehicle is reduced by the amount of the credit. To the extent a vehicle is eligible for credit as a qualified plug-in electric drive motor vehicle, it is not eligible for credit as a qualified hybrid vehicle under section 30B. The portion of the credit attributable to vehicles of a character subject to an allowance for depreciation is treated as part of the general business credit; the nonbusiness portion of the credit is allowable to the extent of the excess of the regular tax and the alternative minimum tax (reduced by certain other credits) for the taxable year.

Description of Proposal
The proposal modifies the plug-in electric drive motor vehicle credit by increasing the 250,000 vehicle limitation to 500,000. It also modifies the definition of qualified plug-in electric drive motor vehicle to exclude low-speed vehicles.

The proposal creates a new credit 10-percent credit for low-speed vehicles, motorcycles, and three-wheeled vehicles that would otherwise meet the criteria of a qualified plug-in electric drive motor vehicle but for the fact that they are low-speed vehicles or do not have at least four wheels. The maximum credit for such vehicles is $4,000. Basis reduction and other rules similar to those found in section 30 apply under the proposal. The new credit is part of the general business credit. The new credit is not available for vehicles sold after December 31, 2011.

Effective Date The proposal is effective for vehicles sold after December 31, 2009.

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