You may be concerned about the environment, but are not ready to give up owning a car. The good news is that going green does not have to mean giving up your car. You can score significant green car benefits from purchasing an all-electric or hybrid car. You’ll not only reduce your carbon footprint, but you’ll save hundreds, if not thousands of dollars in fuel costs. And thanks to federal and state incentives, purchasing a green car often costs less than you might suspect.
Financial Reasons to Buy a Hybrid Car
Driving a green car reduces your carbon footprint while allowing you to retain the independence of owning a private vehicle. Many green car drivers draw satisfaction from knowing that they are minimizing their impact on the environment. Hybrid and all-electric cars are also frequently lighter than cars with conventional gasoline or diesel engines, which means they operate more efficiently.
There are financial as well as environmental green car benefits associated with hybrid and all-electric vehicles, as illustrated in the list below:
- Reduced gas consumption and lower fuel costs
- Regenerative braking to save fuel and extend the life of your brakes
- Higher resale value versus comparable non-green cars
- Preferential loan rates
- Reduced insurance premiums
- Federal and state tax breaks
Federal and State Tax Breaks for Green Cars
Many people aware of green cars' benefits nonetheless don’t buy one because of the up-front cost. In 2009, the infamous Car Allowance Rebate System (CARS), program, commonly known as Cash for Clunkers, was designed to reduce the cost difference for green cars, providing an incentive for drivers nationwide to trade in their old cars for more fuel-efficient models.
The Cash for Clunkers program ended a decade ago. However, California still administers a limited “cash for clunkers” program. Texas also offered its own version of the “cash for clunkers” program, which is winding down. Other federal and state incentives can significantly reduce the financial investment required to purchase an all-electric or hybrid car.
Understanding Federal Tax Breaks for Green Cars
The regulations for federal tax breaks for green cars can be confusing, and it’s worthwhile to speak with a tax attorney or a certified public accountant (CPA) to obtain specific answers to questions pertaining to a particular vehicle. However, the following five points provide a reasonably good summary of the requirements associated with federal tax incentives for green cars:
- Maximum Federal Credit - If you’re facing a large income tax obligation, purchasing a green car can reduce your tax bite significantly or wipe it out completely. The maximum federal tax credit is a healthy $7,500. However, if you only owe $5,000 in federal income taxes, Uncle Sam won’t send you a check for $2,500 to make up the difference — and the leftover credit cannot be carried over to the following year.
- Tax Credit for Leased Vehicles - If you lease rather than buy your green car, the tax credit remains with the manufacturer. Dealers aren’t required to reduce their lease prices to reflect the credit, but many do.
- Tax Credit Expiration - Consider purchasing an all-electric or plug-in hybrid car, versus a non plug-in hybrid or clean diesel model. The tax credit for non plug-in electric and clean diesel cars expired at the end of 2010 However, plug-in hybrid and all-electric passenger vehicles remain eligible for the credit.
- Tax Credit Reductions - It may make sense to make a purchase sooner rather than later. Once certain manufacturer models hit the threshold of 200,000 vehicles sold, the credit is automatically reduced. Tesla hit the 200,000 vehicle sales threshold in July 2018; General Motors hit the 200,000 vehicle sales threshold for the Chevrolet Volt and Bolt in the final quarter of 2018.
- Non-Transferable Credits - Buying a new green car may ultimately cost less than buying a comparable used green car. That’s because tax credits for plug-in hybrid and all-electric cars are only granted to the original owner. It cannot be transferred to a second owner.
Financial Benefits of Going Green with Your Car
The environmental reasons to buy a hybrid car or an all-electric vehicle are compelling. The financial benefits associated with green cars, such as lower fuel costs, provide additional incentives. Federal and state tax and other financial incentives can bring the price of green cars within reach for buyers with more limited budgets. Lastly, it’s also smart to purchase an extended warranty from Protect My Car to cover the costs of maintaining a green car once the factory warranty expires.