Tax Credits For Electric Vehicles In The USA

What Is an Electric Vehicle Tax Credit?

Have you considered driving an electric vehicle? The U.S. Government is encouraging Americans to make the decision, offering a nonrefundable tax credit entitled “Electric Vehicle Tax Credit” (EV Credit).

• This tax credit allows qualified buyers to deduct up to $7,500 of their federal income taxes when purchasing an eligible electric vehicle.
• The maximum amount available is dependent on the capacity of the battery installed in the vehicle.
• For vehicles with at least 7-kilowatt hours (kWh) of battery capacity, a base credit of $2,500 applies.
• An additional $417 is then given for each kWh over 5, with no maximum limit.

Such ample savings will depend on the size and weight of the vehicle, in addition to how many cars have already been sold by the manufacturer. Through this financial incentive, developers are seeking to make electric vehicles more affordable and accessible for all Americans.

Importantly, this EV credit can be used as a tax deduction or a direct payment if you don’t owe taxes. Practically speaking, the EV Credit seeks to render owning such vehicles much more accessible and affordable; thus continuing people down their path toward a fairer and more sustainable future.

The Big EV Tax Credit Benefit

The EV Tax Credit was established in the United States as part of the Inflation Reduction Act (IRA) and is available from 2023 to 2032.

The EV Tax Credit provides a maximum of $7,500 for new electric vehicles or up to $4,000 for used electric vehicles with a limit of 30% of the sale price. It is expected that further guidance on battery and critical mineral requirements will be released by the Treasury Department soon.

The federal government currently offers an EV tax credit of up to $7,500 for cars that meet certain criteria related to critical mineral content and battery component requirements. To qualify for the full $7,500 credit, the vehicles must meet both the critical mineral and the battery component criteria. Otherwise, if only one criterion is met then motorists can receive a tax credit of up to $3,750.

The EV Tax Credit also has additional provisions that vary according to income thresholds and eligibility criteria for various types of vehicles. In addition, the IRA mandated stricter manufacturing standards for EVs in order to qualify for the tax credit. These regulations are aimed at increasing energy efficiency and decreasing air pollution associated with electric vehicle production.

• Manufacturers of electric cars reap several benefits, mainly in the form of tax credits tied to sales. These credits can provide extra advantages to electric car owners.
• Before taking the next steps, it is crucial to get a grasp on how these EV tax credits work and there are some limitations. Primarily, they’re only applied to new vehicles, not used ones.
• So while leasing an electric car won't earn you the credit, the leasing company should give a matching payout by way of reduced monthly payments. This helps ensure you still benefit from the tax credit and makes sure your money goes further.

Credits for New Clean Vehicles Purchased in 2023

With the purchase of a new plug-in electric vehicle (EV) or fuel cell vehicle (FCV) in 2023, customers may be eligible for a tax credit under the Internal Revenue Code Section 30D. This incentive is available to both individuals and businesses but does come with certain qualifications.

To qualify for the credit, the EV or FCV must be used primarily in the United States and not bought for resale purposes. Married couples filing jointly cannot have a modified adjusted gross income (AGI) higher than $300,000, heads of households’ AGIs should not exceed $225,000, and all other filers must have an AGI less than $150,000.

Now you have the option to modify your AGI from either the year you receive delivery of the vehicle, or even turbocharge by using the year prior! Whichever one is less  that is completely up to you.  Utilize your resources and feel secure knowing that you can maximize on this extra benefit.

It’s important to note that there are phaseout limits associated with this credit after reaching certain production levels so it’s important to check with your tax advisor to make sure you’re taking advantage of this incentive while it’s still available.

Qualifying For The EV Tax Credit

The 2022 EV tax credit is an incentive worth between $2,500 and $7,500 offered to those who purchase electric vehicles. This opportunity comes with some fine print:

• An individual must own the vehicle and it must not exceed the weight of 14,000 pounds in order to qualify.
• Unfortunately, certain manufacturers such as Tesla and GM have maxed out their rewards after selling 200,000 qualifying technologies and have become ineligible for the benefit.
• This much-needed reprieve for greener initiatives is non-refundable. Though it can reduce one’s overall tax bill from the Internal Revenue Service (IRS) to zero, it, unfortunately, does not result in a return like other government state initiatives might.

Claiming The EV Tax Credit

• The eligible vehicle must be brand new and contain an MSRP of $80,000 or less for vans, pickup trucks, and sport utility vehicles, while all other vehicles need to have an MSRP of $55,000 or lower to qualify.
• To make the claim, taxpayers are required to file Form 8963 which includes information such as the car’s VIN number with their tax returns.
• Taxpayers could be entitled to anywhere between $2,500 and up to $7,500 in credits depending on what kind of qualifying electric vehicle they invest in but it’s important that this take place prior to July 1st, 2023 when the credit will start to phase out.

Purchased A Clean Vehicle In 2022?

Did you purchase a Clean Vehicle in 2022? If so, credits may be available to you under the Internal Revenue Code Section 30D.

The credit available is based on the battery capacity of your EV and ranges from a minimum of $2,917 all the way up to a maximum of $7,500.

Every EV with 5-kilowatt hours or more earns the base amount of $2,917, and you can collect an extra $417 for every kilowatt hour over 5.

How To Claim The Tax Credit?

To be applicable for this credit, you must secure an electric vehicle especially for your own private use along with regular access in the United States. It can neither have a purpose of resale nor away from alter and also needs an external charging source as well as a gross vehicle weight rating under 14,000 pounds.

Moreover, the EV must have been procured from companies that are yet to sell more than 200,000 units within the US. What’s more, this electric vehicle is obligated to obtain certification from either the US Environmental Protection Agency (EPA) or the California Air Resources Board (CARB). This proves that this electric creation meets air contamination criteria.

If you purchase and take delivery of a qualified electric vehicle (EV) between August 17, 2022, and December 31, 2022, the same rules apply, as outlined above. Additionally, the vehicle must have been assembled in North America to be eligible for the federal tax credit.

To confirm the assembly location for your specific EV, you can visit the Department of Energy’s page on Electric Vehicles with Final Assembly in North America and use their VIN Decoder tool under “Specific Assembly Location Based on VIN”. This tool allows you to enter the Vehicle Identification Number (VIN) of your purchased EV to see where it was assembled.

Furthermore, if you are looking to purchase a qualifying Model Year 2022 or early Model Year 2023 electric vehicle before January 1, 2023, there is an online list with all the EVs that qualify for this program located under “For Vehicles Purchased before January 1, 2023” on the same webpage.

• You may be eligible for a credit if you bought a vehicle, entered into a written binding contract before August 16, 2022, and took possession after August 16, 2022, and before January 1, 2023.
• To take advantage of this credit, you must file Form 8936 with your 2022 tax return and provide the vehicle's VIN.
• If you were eligible for the credit in a prior year but missed claiming it, you may still be able to file an amended return for that year.
• The federal credit for qualified two-wheeled plug-in EVs expired in 2022.
• 2021 purchases placed in service during 2022 can still be credited for 2022.
• Purchases made after 2021 are ineligible for the credit.

Income rules for 2022 vs 2023 for electric vehicles

Here are the main points to consider regarding the income rules for electric vehicles in 2022 and 2023:

2022	2023
To qualify for the tax credit for a new, qualified plug-in EV or fuel cell electric vehicle (FCV), your modified adjusted gross income (AGI) must not exceed: 1. $400,000 for married couples filing jointly 2. $200,000 for all other filers	To qualify for the tax credit for a new, qualified plug-in EV or fuel cell electric vehicle (FCV), your modified adjusted gross income (AGI) must not exceed: 1. $300,000 for married couples filing jointly 2. $225,000 for heads of households 3. $150,000 for all other filers
You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less.	Make sure to optimize the value of your modified AGI when purchasing a vehicle – you can use whichever year has lower rates, whether it be from delivery or even the prior one.
If your modified AGI is below the threshold in one of the two years, you can claim the credit.	Eligibility for the credit depends on Modified AGI. Two years of earnings must be below the threshold to qualify.
The credit is nonrefundable, so you can’t get back more on the credit than you owe in taxes.	Credit is nonrefundable and cannot be higher than the amount of taxes owed.
The credit amount is up to $7,500 for a qualified EV or FCV.	The credit amount for qualified EV or FCV can be up to $7,500.
Overall, the main difference between the income rules for electric vehicles in 2022 and 2023 is the AGI threshold for married couples filing jointly, which was reduced from $400,000 to $300,000.
Note: The Inflation Reduction Act of 2022 changed the income rules for the clean vehicle tax credit for vehicles purchased from 2023 to 2032.