With tax incentives that will knock up to $7,500 off the price of energy-efficient cars, experts say now is one of the best times to get a good deal on the green vehicles.
"If you're interested in a plug-in hybrid or an electric car, this is probably a pretty good time to buy one because these tax incentives are in place and the demand right now isn't so great because gas prices are down," says Jack Nerad, the executive editorial director and executive market analyst at Kelley Blue Book in Irvine, Calif.
Currently, electric vehicles and plug-in hybrids (this differs from a hybrid in that is has a larger battery pack, permits the owner to plug it into charging station and can drive for longer distances on its electrical charge only) purchased during or after 2010 are eligible for federal income tax credits ranging from $2,500 to $7,500. The credit can only be claimed on the first 200,000 vehicles sold.
But you may need to move quickly to take advantage. “Once half (of 200,000 cars) is sold, the credit drops by half and then to a quarter,” says Bengt Halvorson, the deputy editor of High Gear Media, publisher of The Car Connection.
Consumers can find out how much the tax credit is for a particular car by visiting the manufacturer’s web site.
The top 10 cars that qualify for a tax incentive
1. 2014 BMW i3 sedan (electric).
This car, available as a plug-in hybrid and as an electric, qualifies for a federal tax credit of $7,500. Halvorson says it’s a deal right now because consumers can still get the full $7,500 tax credit because not enough cars have been sold yet to reduce the credit.
2. 2013-14 Fiat 500e (electric).
This electric car qualifies for a $7,500 tax credit -- but the vehicle is currently sold out. However, all hope is not lost: "(Fiat) might make more if the demand is there -- if people petition their dealerships and they order more," Halvorson says.
3. 2012-14 Ford Focus EV (electric).
The Ford Focus EV qualifies for the $7,500 tax incentive. “It’s impressive in that it’s essentially the same package you would get with a Focus with a gasoline engine,” Halvorson says. The Focus EV has a 76 gas-free mile range.
4. 2014 Chevrolet Spark EV (electric).
The Spark qualifies for the $7,500 tax credit. “With the tax credit, you can essentially get this car down into the low- to mid-$20,000 range," Halvorson says, making it one of the most affordable electric cars in the market.
5. 2011-14 Nissan Leaf (electric).
The bestselling electric car produced to date, the Nissan Leaf offers a $7,500 federal tax incentive. As more Americans discover how frugal and reliable electric cars like the Leaf are, Halvorson says more will purchase them, especially as more publicly-available chargers become available. According to the Alternative Fuels Data Center, in Mar. 2014 there were 7,731 electric vehicles charging stations in the U.S.
6. 2012-13 Tesla Model S (electric).
With all the buzz surrounding Tesla Motors, the Tesla Model S has become the “poster child” of electric cars, Halvorson says. The Model S "will outrun a lot of gasoline sports cars from a stoplight. It shows that electric cars can be fast, fun, glamorous and luxurious," Halvorson says. But it’s on the high end in terms of price. While the official base price is $69,900, most of the cars are sold with upgraded battery packs and other options, and cost nearly $100,000, Halvorson says. The vehicle qualifies for a $7,500 federal tax incentive.
7. 2013-14 Smart Electric Drive (electric).
This car, which Halvorson describes as "quite a bargain," offers a full $7,500 tax credit. The Smart is one of the smallest and most city-friendly vehicles on the road. Even though that car is just a two-seater, it’s smartly designed. “Even if you're tall you'll fit (in the car)," Halvorson says.
8. 2012-14 Chevy Volt (Plug-In Hybrid).
The Chevy Volt, the first widely available and mass-produced plug-in hybrid car, offers a $7,500 tax incentive. "If you plug in the car, it gets in the range of 30 to 40 miles of driving on electricity and then the gasoline engine starts up," Halvorson says. "You can then drive several hundred miles just like a gasoline car."
9. 2014 Toyota Prius Plug-In (Plug-In Hybrid).
Currently, the Toyota Prius Plug-In qualifies for a $2,500 tax credit. By plugging the Prius into a household wall socket for just a few hours, people can drive about 15 miles without the gasoline engine ever starting. "It's great for short errands," Halvorson says. "You can go a few miles…on electric power only so the gasoline engine never has to start.”
10. 2014 Ford C-MAX Energi (Plug-In Hybrid).
The C-MAX Energi has a range of 21 miles in the city on electrical power only. “The C-MAX Energi and the Toyota Prius Plug-In are definitely two vehicles people would cross-shop against each other,” Halvorson says. “The Ford has a little bit larger battery pack and it’s a little perkier and a little sportier and people might appreciate that.” The current federal tax credit is $4,007.
Other incentives to buy an energy-efficient car
Some states offer additional credits on top of the federal incentives.
In California, for example, people can get an additional credit of $2,500 for electric vehicles and $1,500 for plug-in hybrids.
Georgia is offering up to a $5,000 income tax credit for electric vehicles -- although there's a lot of controversy in that state over whether that is creating an economic benefit and they might phase it out, Halvorson says. For information about tax incentives in your state, you can visit Plug In America’s website, a nonprofit coalition that promotes plug-in vehicles.
Do tax incentives equal immediate savings?
While these incentives can quickly add up to substantial savings, Halvorson says the credits aren’t a direct discount off the sticker price of the vehicle. Consumers don’t get the tax credit until they file their taxes.
The good news, Halvorson says, is the tax credit is a fairly "straightforward one" that typically reduces the vehicle owner's tax bill by the amount of the credit.
However, if a taxpayer’s income isn’t high enough, or they don’t owe any taxes, it can get tricky, Halvorson says. So he recommends consumers check with their tax accountants before purchasing the vehicle to determine how much the credit will reduce their tax bill.
“(Tax incentives) don’t necessarily bring the price of a plug-in hybrid or an electric car down to the cost of a conventional car, but they bring it closer,” Nerad says.
And while the hybrid tax credits were phased out in 2010, the tax incentives for electric vehicles are being extended indefinitely, Halvorson says. Halvorson expects an indefinite extension of the tax incentive for plug-in hybrids too.
Insurance discounts for electric and hybrid car owners
Meanwhile, some insurance companies offer those who drive hybrids and electric vehicles discounts on their insurance policies. Travelers offers a hybrid car discount. In California, Farmers offers a discount to owners of hybrids and electric vehicles. The Hartford offers a 5 percent discount in most states for new policyholders and upon renewal for existing customers for hybrids and electric vehicles.
"This financial incentive is a small way (The Hartford) can thank our customers for helping to foster a greener environment," says Randy Termeer, vice president of consumer markets at The Hartford.