Form 8936 (Rev. January 2022) – 2021 Tax Year Checklist
Purpose
Form 8936 is used to claim the qualified plug-in electric drive motor vehicle credit for eligible vehicles placed in service during the 2021 tax year. The credit applies to both four-wheeled cars with four or more wheels and two-wheeled plug-in electric vehicles. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 extended eligibility for two-wheeled plug-in electric vehicles through 2021, requiring proper vehicle identification and in-service date verification as outlined in the 2021 instructions.
What’s New for 2021
The 2021 tax year includes important updates affecting Form 8936. Two-wheeled plug-in electric vehicles became eligible for the credit under the Taxpayer Certainty and Disaster Tax Relief Act of 2020, which specifically extended this provision to cars acquired in 2021. These two-wheeled vehicles follow different calculation rules compared to four-wheeled or more cars and are subject to a maximum credit of $2,500 per vehicle.
The credit for four- or more-wheel vehicles continues to be subject to manufacturer phase-out rules based on cumulative sales volume. By 2021, certain manufacturers, including Tesla and General Motors, had already phased out completely, meaning that vehicles acquired by these manufacturers after specific dates were no longer eligible for credit.
Personal use credits are reported on Schedule 3 (Form 1040), line 6f, for 2021 returns, reflecting the tax form structure for that year. Business and investment use credits flow through Form 3800, Part III, line 1y as part of the general business credit, or through Schedule K for partnerships and S corporations.
Step-by-Step Filing Checklist
Step 1: Verify Vehicle Eligibility
Confirm your vehicle qualifies under the 2021 rules. Four-wheeled cars must be new and primarily powered by an electric motor that utilizes a battery of at least 4 kilowatt-hours, can be recharged externally, weigh less than 14,000 pounds, and are designed primarily for driving on public roads.
Two-wheeled vehicles must be new, capable of reaching 45 miles per hour or greater, propelled significantly by an electric motor with at least 2.5 kilowatt-hours of battery capacity, capable of external recharging, and have a gross vehicle weight under 14,000 pounds. Obtain manufacturer certification documentation confirming vehicle eligibility for the year placed in service.
Step 2: Check Manufacturer Phase-Out Status
Determine if your vehicle manufacturer has reached the phase-out threshold. The credit phases out once a manufacturer sells 200,000 qualified vehicles for use in the United States after 2009. For 2021, Tesla vehicles acquired after December 31, 2019, are eligible for zero credit. General Motors vehicles acquired after March 31, 2020, are not eligible for credit. All other manufacturers that do not reach the 200,000-vehicle threshold receive 100% of the calculated credit. Check the IRS published list of qualified vehicles and manufacturer phase-out status before claiming the credit.
Step 3: Record Vehicle Identification Number
Enter the complete vehicle identification number on line 2 of Form 8936. The VIN can be obtained from your vehicle's registration, title, proof of insurance, or the car itself. The VIN is typically 17 characters consisting of numbers and letters. Cross-reference your VIN against the IRS published list of qualified vehicles to confirm eligibility before completing the form.
Step 4: Enter In-Service Date
Record the exact date you placed the vehicle in service using the MM/DD/YYYY format on line 3. This date determines if the car qualifies under 2021 rules and establishes which credit amount and phase-out percentage apply to your specific vehicle. The in-service date refers to the date you took delivery and began using the car, not the date you ordered or paid for it.
Step 5: Calculate Tentative Credit Amount
For two-wheeled vehicles, enter the actual cost of the car on line 4a. For four- or more-wheel vehicles, enter the credit allowable for your specific year, make, and model on line 4a, based on manufacturer certification. You can rely on the manufacturer’s or domestic distributor’s certification to the IRS for the credit amount. The credit for four-or-more-wheel vehicles ranges from $2,917 to $7,500, depending on battery capacity, with a base amount of $2,500 plus $417 for each kilowatt-hour of battery capacity exceeding 5 kilowatt-hours.
Step 6: Apply Phase-Out Percentage
Enter the appropriate phase-out percentage on line 4b. For most manufacturers, enter 100% if they have not reached the 200,000-vehicle sales threshold. For Tesla vehicles, enter 0% if acquired after December 31, 2019. For General Motors vehicles, enter 0% if acquired after March 31, 2020. Multiply line 4a by line 4b to calculate your tentative credit on line 4c. If your manufacturer has phased out, you cannot claim any credit for that vehicle.
Step 7: Determine Business or Personal Use
Decide whether you need to complete Part II of the form. Complete Part II only if the vehicle was used for business or investment purposes, or if you received a credit pass-through from a partnership or S corporation. If the vehicle is used solely for personal purposes and you have no pass-through credits, skip Part II and proceed directly to Part III. Vehicles used by employees are treated as 100% business use if personal use value is included in the employee’s gross income or if the employee reimburses you for personal use.
Step 8: Calculate Business/Investment Use Credit
If applicable, enter your business and investment use percentage on line 5 based on actual 2021 usage records. Calculate this percentage by dividing business miles by total miles driven during the year, excluding commuting miles. For two-wheeled vehicles used in business, enter the amount from line 6 on line 8, then multiply by 10% on line 9. Compare line 9 to the $2,500 maximum on line 10 and enter the smaller amount on line 11. For four- or more-wheel vehicles, simply transfer the amount from line 6 to line 11. Apply any Section 179 expense deduction on line 7 if you claimed it for this vehicle on Form 4562.
Step 9: Report Business Credit
Add the amounts from both vehicle columns on line 11 and enter the total on line 12. Include any qualified plug-in electric drive motor vehicle credits from partnerships or S corporations on line 13, using amounts reported on Schedule K-1 box 15 (code P) for Form 1065 or box 13 (code P) for Form 1120-S. Add lines 12 and 13 and enter the total on line 14. Partnerships and S corporations report this amount on Schedule K and stop here. All other filers report the line 14 amount on Form 3800, Part III, line 1y as part of the general business credit.
Step 10: Calculate Personal Use Credit
Complete Part III for any personal use portion of the credit. If you skipped Part II entirely, enter the amount from line 4c on line 15. If you completed Part II, subtract line 6 from line 4c and enter the result on line 15. For two-wheeled vehicles, multiply line 15 by 10% and enter on line 16, then enter $2,500 on line 17 if you skipped Part II, or subtract line 11 from line 10 if you completed Part II. Enter the smaller of line 16 or line 17 on line 18. For four- or more-wheel vehicles, simply transfer the amount from line 15 directly to line 18.
Step 11: Verify Tax Liability
Check that you have sufficient tax liability to claim the personal credit. Enter the amount from Form 1040, Form 1040-SR, or Form 1040-NR, line 18 on line 20. This represents your total tax before credits. On line 21, enter the total of any personal credits from Schedule 3 lines 1 through 4, Form 5695 line 30, Form 8910 line 15, and Schedule R line 22. Subtract line 21 from line 20 and enter the result on line 22. If line 22 is zero or negative, you cannot claim the personal use credit because you have insufficient tax liability.
Step 12: Finalize Personal Credit
Add both vehicle columns on line 18 and enter the total on line 19. Enter the smaller of line 19 or line 22 on line 23. This is your allowable personal use credit. Transfer this amount to Schedule 3 (Form 1040), line 6f. Any unused portion of individual credit due to insufficient tax liability cannot be carried back or forward to other tax years and is permanently lost. The particular portion of the credit is nonrefundable, meaning it can only reduce your tax liability to zero, but cannot create a refund.
Step 13: Attach Form and Documentation
Attach the completed Form 8936 to your 2021 tax return in attachment sequence position 69. Include it with Form 1040, Form 1040-SR, or Form 1040-NR as appropriate. Keep copies of all manufacturer certification documents showing your vehicle qualifies for the credit. Retain documentation of the in-service date, vehicle cost, VIN verification, business and investment use allocation records, and any partnership or S corporation credit pass-through statements. The IRS may request these documents to substantiate your credit claim.
Step 14: Understand Credit Limitations
Recognize the important limitations affecting your credit. The maximum credit per two-wheeled vehicle is $2,500, applicable to both personal and business use. For four- or more-wheel cars, the maximum range is up to $7,500, depending on battery capacity. No inflation adjustments or threshold changes were issued for 2021. The credit is nonrefundable for personal use, meaning it cannot exceed your tax liability. Any unused personal credit is forfeited and cannot be carried over to the next year. Only the original purchaser can claim the credit; if you lease a vehicle, only the lessor is entitled to the credit, not the lessee.
Step 15: Reduce Vehicle Basis
Unless you elect not to claim the credit, you must reduce the basis of each vehicle by the sum of the credit amounts you entered on lines 11 and 18 for that vehicle. This basis reduction affects depreciation calculations for business vehicles and capital gain or loss calculations when you eventually dispose of the car. Maintain accurate records of the basis reduction for future tax reporting purposes. Be aware that if the vehicle no longer qualifies for the credit in the coming years, you may have to recapture part or all of it under Section 30D provisions.
Special Considerations for 2021
The 2021 tax year marked a transition period for electric vehicle credits. While two-wheeled plug-in electric vehicles received a one-year extension under the Taxpayer Certainty and Disaster Tax Relief Act of 2020, several major manufacturers had already completed their phase-out periods. Tesla and General Motors vehicles acquired in 2021 did not qualify for any federal tax credit because their manufacturers had exceeded the 200,000-vehicle sales cap in prior years.
Form 8936 for 2021 maintains consistency with prior years for four-or-more-wheel vehicles while adding the two-wheeled vehicle category with distinct calculation methods. The two-wheeled credit is calculated as 10% of the vehicle cost, capped at $250. In contrast, four-wheeled vehicles have predetermined credit amounts based on battery capacity, as certified by manufacturers.
Understanding the distinction between personal and business credits is crucial for proper reporting. Business credits flow through the general business credit system on Form 3800 and may be subject to different limitation rules compared to personal credits reported directly on Schedule 3. Partnerships and S corporations must file Form 8936 and pass credits through to partners or shareholders using Schedule K-1.
Documentation Requirements
Maintaining thorough documentation is essential for substantiating your Form 8936 credit claim. Keep the manufacturer’s certification letter, which confirms your vehicle qualifies for the credit, including the specific credit amount for your vehicle’s year, make, and model. Retain your purchase agreement showing the acquisition date and vehicle cost, along with the title and registration displaying the VIN.
For business use claims, maintain detailed mileage logs showing business miles, personal miles, and total miles driven throughout 2021. Document the in-service date with delivery receipts or first-use records. If you received pass-through credits from partnerships or S corporations, retain all Schedule K-1 forms reporting these amounts.
The IRS may verify manufacturer certifications against its published list of qualified vehicles, so ensure your vehicle appears on the appropriate list for the 2021 tax year. If manufacturer certification is withdrawn after you acquire a car but before it is placed in service, special rules may apply. Consult the detailed instructions for guidance on these situations.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
