Colorado EV Tax Credit Rises to $5,000

Colorado now offers one of the highest state electric vehicle tax credits thanks to a new clean energy law. Colorado taxpayers can take advantage of this credit, which combined with the federal EV tax credit, can result in even greater savings.

The new law, "Tax Policy that Advances Decarbonization," which was recently signed by Colorado Gov. Jared Polis, aims to encourage the use of clean energy in part by providing several billion dollars in tax incentives. One is a $5,000 state tax credit for qualifying electric cars and up to $12,000 for eligible electric trucks. Colorado will also offer a statewide E-bike tax incentive, among other tax breaks.

"This is for Colorado to get a head start to help more people afford electric vehicles earlier and reduce the cost in Colorado," Polis told reporters when the law was proposed earlier this year.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Related: How the Federal EV Tax Credit Works

How Much is the Colorado EV Tax Credit? 

• Beginning July 1, the Colorado electric vehicle tax credit rises from $2,000 to $5,000 for vehicles with a manufacturer-suggested retail price (MSRP) under $80,000.
• Then, in January 2024, another Colorado state EV tax credit of $2,500 goes into effect for electric vehicles with MSRPs under $35,000.
• Beginning in 2025 however, the Colorado state electric vehicle tax credit gradually decreases each year, through 2029, according to the legislation.

Colorado tax credit for electric trucks: The state tax credit is $12,000 for medium and heavy-duty electric trucks. That amount will apply through 2032. 

Huge Potential Savings: If you're an eligible buyer looking to purchase a qualifying electric vehicle in Colorado, you can potentially benefit from stacking the state and federal EV tax credits. That means you could save up to $12,500 if you buy an electric car and up to nearly $20,000 if you purchase an electric truck that qualifies for both credits. (Keep in mind that income and price limits apply for the federal electric vehicle tax credit.)

The higher Colorado state electric vehicle tax credit comes just as Tesla recently announced that all Model 3 versions qualify for the full $7,500 federal EV tax credit. The automaker also reduced the starting price of its Model 3 making it potentially more affordable. 

The full fleet of electric vehicle models from GM, including the popular Chevy Bolt EV, are also eligible for the full federal tax credit.

Colorado E-Bike Incentive

Colorado’s clean energy legislation also provides for an electric bike tax incentive. Beginning in April of 2024, 

• Coloradans who purchase an E-Bike will get a statewide tax break of $450. 
• That money operates as a point-of-sale tax credit, which means it functions like a discount on the purchase price of the electric bike.
• Congress has proposed a federal tax credit for electric bikes. Although, it’s unclear whether the proposed credit of up to $1,500 has enough bipartisan support to pass.

Claiming the Colorado Electric Vehicle Credit 

The Colorado electric vehicle tax credit can reduce your tax liability because, like other tax credits, it reduces your taxable income. 

• The credit is available to Colorado taxpayers and applied to the tax return filed the year following the year the EV is purchased. 
• So, if you purchase and start using your electric car or truck in 2023, you claim the tax credit on your 2023 tax return that you would typically file early in 2024. 
• The federal EV tax credit generally works the same way, except that income limits restrict who can claim the credit, and price limits and other requirements determine whether certain electric vehicles qualify for a full, partial, or no tax credit.

Colorado Energy Rebates

In addition, if you are a Colorado resident interested in saving more money, some Colorado utility companies offer up to $5,500 in rebates for electric vehicles and home charging stations. The federal tax credit for electric vehicle chargers, which expired a couple of years ago, is also back.

Related

• Leasing an EV? There's a Tax Credit Loophole for That
• How the EV Tax Credit Works
• Federal E-Bike Tax Credit Proposal