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Electric vehicles (EVs) are gaining popularity in Colorado, and for good reason. According to one data source, Colorado had 156,281 electric cars, which is nearly 66 percent more than the 99,931 EVs reported in September 2023.
Apart from being eco-friendly, EVs offer smooth and quiet rides. Icing over the cake is that they come with significant financial perks through tax credits and incentives. If you’re considering an EV purchase or lease in Colorado, understanding the available tax credits can help you save thousands of dollars.
This blog will break down the eligibility requirements for EV tax credits in Colorado. Let’s dive in and make sense of these savings in simple, easy-to-understand terms.
What Are EV Tax Credits?
EV tax credits are financial incentives offered by federal and state governments to encoura
ge people to buy or lease electric vehicles. These credits work by reducing the amount of income tax you owe, which can lower the overall cost of your EV.
In some cases, dealerships in Colorado can apply these credits directly at the time of purchase, making your EV more affordable upfront. Think of it like a discount on your taxes—or even cash back—designed to make electric driving more accessible.
Having said that, understanding tax credits can be a bit complicated. Thanks to the certain eligibility rules associated with them. To make sure you are making the most of these incentives, you can reach out to a licensed tax professional for personalized advice. If you live in Colorado, the Colorado Department of Revenue Taxpayer Helpline is another great resource for guidance.
Breaking Down the Colorado State EV Tax Credits
Colorado offers generous state tax credits for EV buyers and lessees. Here’s what you need to know:
- Base Credit: If you’re a Colorado taxpayer, you can claim a $3,500 tax credit when purchasing or leasing a new EV with a Manufacturer’s Suggested Retail Price (MSRP) of up to $80,000. For leases, the agreement must have an initial term of at least two years.
- Bonus Credit for Affordable EVs: If the EV’s MSRP is under $35,000, you may qualify for an additional $2,500, bringing the total state credit to $6,000.
- No Tax Liability Requirement: Unlike some federal credits, Colorado’s state tax credit is available even if you don’t owe taxes equal to the credit amount. This makes it accessible to more people.
If you’re not a Colorado resident, check with your state’s tax authority for similar incentives.
Federal EV Tax Credit for New Vehicles are Also Available
Colorado residents can also access federal incentives, in addition to state credits.
The federal government offers a tax credit of up to $7,500 for new EVs, but eligibility depends on several factors. Here’s a breakdown of the requirements:
Tax Burden: Your federal income tax liability for the year must be at least $7,500 to claim the full credit. If you owe less, you’ll only receive a credit equal to your tax liability.
EV Tax Credit Income Limit: The federal credit has income caps. For 2025, your modified adjusted gross income (AGI) must not exceed:
- $300,000 for married couples filing jointly or surviving spouses.
- $225,000 for heads of household.
- $150,000 for all other filers.
- If your income exceeds these limits, you may not qualify for the credit.
MSRP Caps: The vehicle’s MSRP must be below:
- $80,000 for SUVs, pickup trucks, and vans.
- $55,000 for sedans and other vehicles.
Manufacturing Requirements: The EV must meet strict rules about where it’s made and where its components come from:
- At least 50% of critical minerals (like lithium or cobalt) in the battery must be sourced from the U.S. or countries with a U.S. free trade agreement.
- At least 60% of battery components must be assembled in North America.
- The vehicle must not include materials from “foreign entities of concern” (specific countries outlined by the U.S. government).
If the vehicle doesn’t meet all manufacturing requirements, you may still qualify for a partial credit of $3,750.
To find cars that qualify for EV tax credit, check the U.S. Department of Energy’s list of eligible vehicles, which is updated regularly.
Beyond federal and state credits, Colorado’s utility companies offer extra savings for EV owners. For example:
- San Isabel Electric Association: Offers a $500 rebate for EV purchases.
- Holy Cross Energy: Get a $549 rebate when you buy an approved home charger model.
- Xcel Energy: Offers rebates between $500 and $1,300, depending on your income level.
- Black Hills Energy: Income-qualified customers can get up to $1,300, while others may receive $500 for a standard charger installation.
- Mountain Parks Electric: Covers 50% of the cost of buying and installing a home charger, up to a maximum of $1,000.
Check your utility provider’s website for the latest details on available rebates and eligibility.
Leverage Vehicle Exchange Program to Save More
Swapping your older car for a new electric car also lets you enjoy a rebate that is as much as $6,000. To become eligible for this incentive, your household income should be below 80% of the Area Median Income. For instance, in Denver, Jefferson, Adams, and Arapahoe Counties, a single-person household in the 2024-25 fiscal year would need an income under $73,040.
Secondly, the vehicle you’re trading in must be operational and either at least 12 years old (model year 2013 or earlier) or have failed a Colorado emissions test.
To receive the rebate, you must apply online and bring certified documentation to Emich Volkswagen at the time of sale.
Heads up: The VXC program is scheduled to conclude on June 30, 2025.
Tips for Maximizing Your EV Savings
To make the most of EV tax credits in Colorado:
- Research Eligible Vehicles: Use the U.S. Department of Energy’s list to find cars that qualify for EV tax credit.
- Check Your Income: Ensure your modified AGI falls within the EV tax credit income limit for federal credits.
- Explore Leasing: If you’re unsure about meeting federal requirements, leasing might be a simpler way to access the $7,500 credit.
- Ask About Point-of-Sale Credits: Save upfront by choosing a dealership that applies for credits at purchase.
- Look for Utility Rebates: Combine state and federal credits with utility incentives for maximum savings.
Conclusion
Switching to an electric vehicle in Colorado is not only a smart choice for the environment but also a financially savvy one. With up to $6,000 in state tax credits, up to $7,500 in federal credits, and additional utility rebates, you can significantly reduce the cost of your EV. By understanding which cars qualify for the EV tax credit, how to claim the $7,500 EV tax credit, and the EV tax credit income limit, you’re well-equipped to make an informed decision. Do your research, consult a tax professional, and get ready to enjoy the savings and benefits of driving electric in Colorado!
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