Comprehensive Tax & Legal Solutions

Would you buy an electric car to get a tax benefit?

On Behalf of | Oct 19, 2016 | Tax Law

Taxes collected by Ohio and the federal government are used to promote many goals beyond merely raising revenue. Of course, state and federal taxes are used to generate the governmental income that pays for things as varied as the state courts, highways, law enforcement and schools.

But tax policy is often used to promote societal goods and to restrain ills. We offer a mortgage interest deduction to encourage home ownership and we tax items like cigarettes and alcohol at high rates, in an effort to discourage usage and prevent abuse. We often lower tax rates in an effort to spur business development.

There are always questions as to the effectiveness of any of these efforts. Do they encourage people who would not have otherwise purchased homes to buy them, dissuade people from smoking or cause businesses to expand when they would not have done otherwise absent the tax reduction?

Widespread use of electric cars could help lower pollution and reduce carbon emissions. One Ohio senator has proposed a bill that would provide a $3,000 tax credit for electric car owners. He suggests this is similar to other credits offered to encourage the use of public transportation.

A $3,000 tax credit annual is substantial, as it would lower your tax paid dollar-for-dollar, and is much better than merely a deduction, which if it were a similar amount would only the average taxpayer’s tax obligation by about $900.

But would it really lead you to invest the large sum required to purchase an electric car? Given the complexity of electric car ownership, with issues of vehicle range, finding places to charge the vehicle and having service done, purchase of such a vehicle is likely to require a complex analysis of many elements of your life.

The same should be true for any decision that carries a tax incentive. You want to be sure that your decision is not penny-wise and pound-foolish.