There’s an indisputable perk to buying an electric car —  here’s how it really works

A Tesla vehicle being recharged. Sean Gallup/Getty Images

One of the factors that gets consumers off the fence about electric-car ownership is the tax break, both federal and in some states.

But the credits vary, depending on manufacturer — and issue is more prominent for some carmakers, especially Tesla, which was recently clonked at gonzo finance blog Zero Hedge for seeing a big quarterly sales drop when tax incentives in Denmark were phased out.

The Department of Energy and the IRS break down the rules in the US, but here’s a basic rundown (and remember, at the federal level we’re dealing with a tax credit here, so you only get to use it if you if you owe taxes, and you can only reduce your tax liability to zero, no lower, so there’s no carryover).

For Tesla, the federal credit for all three of its eligible vehicles, including the discontinued Roadster, is $US7,500. That’s the maximum the IRS allows, and the Tesla credit is at that level because its vehicles have such large batteries.

The minimum federal credit is $US2,500. Importantly, you can individually claim the credit as a vehicle owners, but not as a leaser. At the low-end of vehicles that qualify, you’ll find the gas-electric plug-in hybrid BMW i8, at $US3,793.

Chevrolet Bolt 6
The Chevy Bolt EV. Hollis Johnson

A wide range of manufacturers are currently selling vehicles eligible for the federal credit. Their numbers may dwindle if the EV market improves (it currently stands at about 1% of global sales) and carmakers bump up against a 200,000-vehicle limit, at which point the credit enters a phase-out period when buyers can no longer claim the full credit value before it disappears altogether.

The state situation is understandably more of a hodge-podge and includes rebates alongside the tax breaks, with Maryland offering the lowest of 37 states at $US1,000 and Colorado the highest, at $US6,000. They’re summarized at the National Conference of State Legislatures.

On balance, the tax credits are fairly modest when considered against vehicle costs, although they lively move the needle more when the car in question is priced on the lower side.

Tesla is often accused of living off government subsidies for its vehicles, but this is wrong when it comes to the tax breaks. Tesla’s cars dwell at the high end of the price spectrum and the tax credits, while useful, don’t cut that much off the cost of vehicles and require buyers to need a tax credit in the first place. At the moment, the cheapest Tesla available, the Model S 75, sells for about $US70,000.

The federal credits and state incentive could make more of a difference with the forthcoming $US35,000 Model 3, but with 400,000 per-orders on the books, this is also the vehicle that will take Tesla to the limit for the federal phase-out trigger.

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