What is a Qualified Electric Vehicle?

A qualified electric vehicle is powered by an electric motor that relies on rechargeable batteries or fuel cells.

How Does a Qualified Electric Vehicle Work?

Specifically, and according to the IRS, a qualified electric vehicle must have a battery capacity of at least 2.5 kilowatt hours if the vehicle has 2-3 wheels, and it must have a battery capacity of at least 4 kilowatt hours if the vehicle has 4 wheels. Four-wheeled qualified electric vehicles must be able to reach a speed of more than 20 but not more than 25 miles per hours after one mile on a paved level surface, and it can't weigh more than 3,000 pounds.

Using IRS Form 8834, a taxpayer in 2010 could take up to a $2,500 federal tax credit for purchasing a qualified electric vehicle. The taxpayer must buy the vehicle for personal or business use, but it cannot be purchased for resale. Also, vehicles that were once nonelectric vehicles (i.e., converted vehicles) are not eligible.

Why Does a Qualified Electric Vehicle Matter?

Qualified electric vehicles are usually eligible for a tax credit, which effectively reduces the price of the vehicle by at least $2,500 (more if the taxpayer's state also offers a tax credit).