Financial and Tax Incentives: Should You Buy an Electric or Gasoline Car?
7.6 MIN READ
Buying an electric or gasoline car is a big decision. There are many factors to consider, but ultimately it comes down to cost. Knowing the financial and tax incentives for each option can help you make the right choice.
Related Article | The Finance Dictionary: Learn the jargon your Finance friends speak!
What Is an Electric Car?
If you’ve seen the Tesla 3 driving around on the road, you’ve seen an electric car, but so many other manufacturers make them now too.
An electric car can mean several things - it’s not just a car that runs entirely on electricity, although that’s a possibility too.
When you shop for an electric car, you may find the following:
- Battery-Electric Vehicles - These cars run only on electricity
- Plug-in Hybrid Electric Vehicles - These cars run on gas and electricity, and they regenerate their energy every time you brake
- Hybrid Electric Vehicles - These cars run primarily on gas but have regenerative braking and other electric car components
Decide what you’re most comfortable with before buying an electric vehicle. You may want to break yourself in with a hybrid EV before going full electric.
The Cost of an Electric Car vs Gasoline Car
Before we get into the incentives of owning an electric car vs gasoline car, let’s look at the overall costs.
In both cases, you must be able to afford the car’s purchase price. Electric cars usually cost more than gasoline cars, but that seems to be changing as more manufacturers make electric cars, and you don’t have to rely on the ‘luxury’ brands.
Related Article | 3 Steps Immigrants Should Take When Getting Their First Car
The Cost of a Gasoline Car
The largest focus when choosing an electric car vs gasoline car is the cost of running it. Gas cars obviously run on gas, and gas prices have been on the higher end lately. Today’s current average price per gallon in the United States is $3.32. The average car has a 14-gallon gas tank, which means a tank of gas costs an average of $46.48.
If your car gets 15 miles to the gallon, it would cost you $0.22 per mile.
The Cost of an Electric Car
Just like we looked at the average price per gallon for gasoline cars, we’ll look at the average cost per kilowatt-hour for electricity. In the United States, the average price per kilowatt-hour is $.1042, and your vehicle uses 40 kWh for every 100 miles. It would cost you $0.042 per gallon.
Looking at these numbers, it feels like a no-brainer, but there are other factors to consider. For example, the cost of electricity in your area is a significant factor. But if you’ll charge on a public charger, you may save money.
The Financial Benefits of an Electric Car
After considering the gas and electric costs, it’s essential to understand the other financial benefits of an electric car.
Lower Maintenance Costs
Maintaining a car can be expensive, especially if it's a lemon. However, electric cars tend to have lower maintenance costs. There aren’t transmission fluids or coolant to replace or flush, and there’s also no engine oil.
Related Article | Purchasing Auto Insurance: The First-Time Guide for Immigrants
Lower Fuel Costs for Hybrid Vehicles
If you choose a hybrid car, you’ll still fill your car with gas, but not as often as a gasoline car. You split the costs down the middle since you’ll spend money charging the vehicle and on gas, but you’ll use less gas than you would with a traditional car.
You May Pay Lower Utility Rates for Charging Your Car
Some utility companies offer savings on electricity to power a car if you power it during off-peak hours. Check with your utility company to see if such savings exist.
You Can Save Even More Money With Solar Panels
If you really want to save money, you can install solar panels on your house and produce your own electricity. Then the cost of owning an electric vehicle drops even further.
The Financial Benefits of a Gasoline Car
While electric cars have many benefits, gasoline cars have some financial benefits too.
Gasoline Cars Cost Less Upfront
The initial cost outlay when buying a gasoline car is much lower than that of an electric car. You’ll also have a much wider variety to choose from, allowing you to stay within your budget.
Parts Are Cheaper
Parts for gasoline cars are often cheaper than electric cars for a few reasons. First, they are more readily available. Second, you can find more aftermarket parts for gasoline cars than electric cars, which may save you more money.
Related Article | How Much Money Can I Bring Into The USA On A Plane?
You Can Go to Any Repair Shop
When you have an electric car, your choices for repair shops may be limited. This makes it harder to shop around for a shop with the best prices. Repair shops for gasoline cars, on the other hand, are a dime a dozen making it easier to shop around.
Do Electric Cars Have Any Tax Benefits?
The IRS offers a nice tax incentive if you buy an electric car. The credit is up to $7,500, but it only pertains to specific manufacturers. Once a manufacturer sells 200,000 electric vehicles, the tax credit phases out for that particular vehicle. For example, Teslas are no longer eligible for the tax credit, but Audi e-Tron vehicles, Nissan Leaf, and the Porsche Taycan, among others, are still eligible.
The tax credit isn’t refundable, though. You can only take credit for the amount of taxes you owe. For example, if your tax liability is $4,000, you can only take a tax credit for $4,000. You cannot carry the excess forward either.
Similarly, the federal tax credit cannot be passed on as it is only valid for the original purchaser. This is true even if you buy a used electric vehicle.
However, some states have incentives for buying electric vehicles. Check with your tax advisor or state tax department to determine if there are any benefits. In California, for example, people who buy an electric vehicle get a $1,500 rebate.
Do Gasoline Cars Have Any Tax Benefits?
Gasoline cars don’t have the same tax benefits as electric cars. However, if you use your car for business purposes, you may be able to take a mileage tax deduction which helps offset the cost of gas and maintenance/repairs.
If you use your car for business purposes, such as meeting clients or attending sales meetings, or if you're assigned to an office that's different from where you're usually based (regular commute miles don't count), you can take the tax deduction.
Questions to Ask Yourself When Choosing an Electric or Gasoline Car
Whether an electric or gasoline car is better for you depends on your circumstances. Here are some questions to ask yourself to make the decision easier.
1. Is the Range Far Enough?
If you choose an electric car, make sure it has the range you need. The last thing you want is to find out the car can’t last on its initial charge for your regular commute. Most cars have an average of a 200-mile range which is more than enough for most people, but find out the specifics of the car you’re considering.
Related Article | How to Save 10000 in a Year: 10 Steps to Get Started
2. Do You Have the Correct Type of Electrical Outlet?
Charging a car is much different than charging your phone, for example. You may need much more power to get the charge you need. If you only use the car occasionally and don’t drive many miles, the standard 110-volt outlet may be enough. If not, you may need to pay an electrician to install a 240-volt outlet. This adds to the cost of the vehicle and should be considered.
3. Will You Need Public Chargers?
Public chargers are located in more places than you may think, but you shouldn't rely on them. Each charger offers a different type of charging (Level 1 vs Level 2 vs fast charging). Make sure your car can handle the type of charging available on your normal commute in case you find yourself in a bind.
4. Can You Afford the Repairs?
Electric cars need repairs much less often than gasoline cars, but nothing runs forever. For example, if you need to replace the batter, it can cost as much as $10,000, depending on the model. Before buying an electric vehicle, find out the total cost of the battery and any other common repairs.
5. Can You Afford the Insurance?
Just like electric vehicles cost more than gasoline vehicles, so does the insurance. When something costs more to buy, it costs more to insure it. Electric vehicle insurance also costs more because of the cost of repairing them. If you were in an accident, it would likely cost more to repair the EV versus a gasoline vehicle.
The Bottom Line
Should you buy an electric car or stick with a gasoline car? If you’re undecided, there’s always the option to go hybrid. The answer depends on what you can afford, how much you drive, and your charging capabilities at home.
There isn’t a right or wrong answer, but if you can take advantage of a tax credit and you’ll save money on gas, it might not be a bad idea.