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Want a Plug-In Car With Federal Tax Credits? The Clock Is Ticking

Edmunds.com logo Edmunds.com 4/7/2017

Are you toying with the idea of buying an electric car or plug-in hybrid in the next couple years? Are the federal tax credits of up to $7,500 and state rebates for which you may qualify a key part of your purchase plan? If so, it may be time to stop toying and start buying. Tax credits and rebates for plug-in cars are starting to dry up and might not be replenished.

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Federal credits are only available to the first 200,000 customers of each carmaker offering them. Take Tesla, for example: It has sold nearly 100,000 Tesla Model S and Tesla Model X vehicles, which would put it near the halfway point of its credit allotment. Shoppers will claim many more of those credits when the Tesla Model 3 launches. That will be in July, according to the carmaker.

Nissan, which makes the Nissan Leaf , is about halfway through its credit allotment. General Motors, whose plug-in cars include the new Chevrolet Bolt and Chevrolet Volt , is expected to run out of credits in late 2018 or in 2019.

The credits could be extended, but that would require congressional action. That's because the credits are part of a broader set of Environmental Protection Agency (EPA) policies that require carmakers to produce cars that are more fuel-efficient and emit fewer greenhouse gases. If you've been keeping up with the news, you know that the Trump administration has discussed rolling back those emissions requirements.

This means there's a good chance the federal tax credits won't be extended. Without them, it's likely shoppers will stop buying and the fledgling market for plug-in cars will likely crash, according to a new Edmunds report .

Also clouding the future for shoppers: Some states are rethinking their incentives for plug-in cars. Georgia, which had been offering a generous $5,000 tax credit for zero-emission vehicles, eliminated it in July 2015. Illinois, Tennessee and Pennsylvania also have let their credits expire . Other states, including Utah and possibly Colorado, are following suit.

Even EV-friendly California is changing its rebate program by taking income levels into consideration. As of November 1, 2016, California residents with individual annual incomes of $150,000 or more ($300,000 for a joint return) no longer qualify for plug-in vehicle rebates. People with low incomes, on the other hand, can qualify for an additional $2,000 rebate for both full EVs and plug-in hybrids.

Here are a few strategies if you're on the fence about buying an EV:

Buy Now: If the credits won't be extended in the foreseeable future, why wait? If you're in the market to buy a car, or soon will be, now is a great time to buy. There are plenty of EVs to choose from, and since they aren't exactly flying off the lots, there's room for negotiation on pricing.

Wait and Time Your Purchase: Maybe you have a lease now and it's up in a couple years. Or perhaps you're not 100 percent sold on the current EV models. Maybe you're waiting for the Tesla Model 3 to become more readily available. Rather than buy now, keep an eye out for the new models as they are released and take note of what you like. At the same time, you might want to bookmark the EPA's state and federal EV tax credit page and check on them from time to time. They will note when the credits are being phased out and how much they will be reduced. And even if you're on the edge of a tax credit phaseout, the credit should be honored until the end of the quarter under which it falls.

Wait Longer and Hope: If you're not shopping for a car anytime soon but you'd really like to reduce your carbon footprint at some point in the future, don't worry about this stuff for now. But keep your fingers crossed. As our analysts have noted, EV sales may tank if the tax credits expire. And if that happens, automakers may step in and either adjust their pricing or offer incentives of their own to make the cars more attractive to shoppers, but it's not a sure thing. Worst-case scenario? You buy a used EV and spare yourself the steep new-EV depreciation.

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