Tax season isn’t anyone’s favorite. Filing your taxes is a hassle, even when you’re getting money back. But most people want to get the largest return possible, and that means qualifying for deductions and tax credits. One credit people often overlook is the energy efficient vehicle tax credit. Protecting the environment can actually save you money.

Getting an Energy Efficient Vehicle Tax Credit

Obtaining an energy efficient vehicle tax credit involves filling out Form 8936 when you file your taxes. Keep in mind, though, if you purchase your vehicle in January, you’ll have to wait a whole year prior to enjoying your credit. Also, before you begin your taxes, make sure your method of tax-filing supports alternative fuel car tax credits.

What You’ll Save

Many car dealers advertise a fuel efficient vehicle as eligible for a tax credit of up to $7,500. However, like with most advertisements, there’s a catch.

The tax credit actually only applies to certain alternative fuel vehicles. Also, the maximum amount you receive is determined by the battery pack’s capacity. All current electric vehicles qualify for the full credit, but only certain plug-in hybrids qualify.

For example, suppose you purchased a 2017 Kia Soul EV. You’ll qualify for the credit because its battery capacity qualifies. However, if you purchase a plug-in hybrid like the Toyota Prius Prime, you’ll only get $4,502.

Who Claims the Tax Credit, and Can it be Passed On?

People occasionally ask this question because they want their children, descendants, or other people in their lives to benefit from a fuel efficient car tax credit. Unfortunately, you can only get the credit if you’re the qualified vehicle’s original owner.

Alternative Fuel Vehicle Tax Credit Conditions

Before you jump into something, you should always educate yourself on conditions that apply. The same holds true for the energy efficient vehicle tax credit.

Besides battery capacity, the following conditions apply:

• The car must be used in the United States the majority of the time.
• Only new cars are qualified for the tax credit.
• Cars that have been converted from gasoline to electricity don’t qualify.
• Electric vehicles and plug-in hybrids must be manufactured by qualified companies in order to have eligibility.

State Tax Credits

Federal tax credits for electric and hybrid vehicles receive lots of attention, but there are other tax credits you can qualify for. Some states and regions offer incentives like reduced or eliminated fees.

For example, Colorado is known for being a very generous state when it comes to vehicle tax credits. If you happen to live there, you can get back as much as $5,000, in addition to the $7,500 federal credit. Talk about savings.

When you’re thinking about your next car purchase, remember that you can make tax season that much better with an energy efficient vehicle tax credit. Many people miss out on the opportunity simply because they don’t know it exists.

What’s more, if you already own an energy efficient car, you could still qualify for the credit, even if you bought it years ago. There’s nothing quite like saving the environment and saving money.