Car buying is deflating right now.
Chip shortages have led to reduced supply of new vehicles, which has increased prices of both new and used cars.
When it comes to car buying, knowledge is power. What started as a 2021 Toyota Prius Prime LE with an MSRP (Manufacturer’s Suggested Retail Price) of $28,220 ended up costing me $18,539 after factoring in discounts and credits. The Prius Prime is a semi-electric vehicle that runs on battery power before gas kicks in.
Here's what I found from my research and how I was able to save money when buying my car:
State clean car programs knocked off $4,500
State clean car programs mandate that a certain percentage of cars that a manufacturer sells has to be electric or zero-emission vehicles.
These states have clean car programs in place:
If you live in one of these states, you're in luck.
Because of these programs, electric car makers struggling to meet their quota for the year have discounted certain cars. If they aren't able to sell their target amount of cars, they have to buy those credits from other companies. The dealership that I went to was discounting Priuses at around $4,500.
Even if you don't live in one of those states, being able to travel to one of them is enough. For example, I live in Washington, D.C. but hitched a ride up to Maryland to buy my car. Totally worth the cost of the Uber.
"I've had many customers travel from out of state to take advantage of the savings," said Sam Rhee, a dealer at the Heritage Toyota of Catonsville where I ended up buying my Prius.
►Toyota's EV investment: Toyota to build $1.3 billion U.S. battery plant for electric vehicles, hybrids
Additional electric car tax credits vary from state to state, and energysage.com offers a list of ways to save money on EVs organized by state along with links to each piece of legislation. For example, Massachusetts offers rebates of up to $2,500 to customers purchasing or leasing a plug-in electric vehicle, and Maryland offers individuals $700 for the cost of acquiring and installing qualified charging equipment.
The U.S. Department of Energy has also created an interactive map to help car buyers identify state laws and incentives related to alternative fuels and advanced vehicles.
Federal electric vehicle tax credits give you back up to $7,500
For the past decade, the federal government has been trying to encourage the adoption of electric vehicles and thus gives out subsidies in the form of tax credits, up to $7,500.
On fueleconomy.gov, you can look up your car and see how much you can save for a particular model and make.
For my car, a 2021 Toyota Prius Prime, I'll save $4,502 in the form of a tax refund at the end of the year.
The subsidy applies to electric, plug-in hybrids and fuel-cell vehicles, and it only counts for new cars, not used or leased ones.
Picking the right time to visit the dealership can save thousands
The best time to go into a shop is when they're trying to clear out inventory. A lot of times, this is the end of the month when they are trying to clear out inventory, or when auto manufacturers pressure dealers to clear lots and make way for new models that are released.
"As fast as these technologies are changing, they [car manufacturers] want to get those new features and in many cases longer-range batteries out to customers," says Stacy Noblet, senior director of transportation electrification at ICF, a global consulting agency.
Toyota isn't the only one that offers rebates.
"Nissan actually did a big program a couple years ago with the Leaf where they partnered with utilities and with other specific organizations to significantly discount the previous year's Leaf so that they could move those off a lot," Noblet said.
At the dealership I went to, there was a $1,500 dealer discount on top of the incentives.
TLDR: the grand total
All the discounts can be hard to keep track of. To summarize, the math looked like this for the final price of the car I got.
Starting MSRP: $28,220
- Dealer discount: $1,500
- Toyota rebate: $4,500
= Sale price: $22,220
- Federal tax credit: $4,502 (applied when you file taxes)
= Net Cost: $17,718
On top of that, if you finance with Toyota, you can get $500 off your car loan. Depending on how fast you pay it off, the loan can actually save you money.
Overall, even if you were to sell the car in a few years, you'd likely recoup most of the cost of the car given that you paid a fraction of the total cost.
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Michelle Shen is a Money & Tech Digital Reporter for USA TODAY. You can reach her @michelle_shen10 on Twitter.
This article originally appeared on USA TODAY: Federal tax credits for electric cars in 2021 can save you thousands