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Electric Vehicle Tax Credit – What You Need to Know

Jaime Aulicino, EA

[email protected]

In 2023, electric vehicles (EVs) became a hot commodity as a new clean vehicle tax credit gave buyers even more incentive to make the switch from internal combustion engines. The credit, with a $7,500 limit, covers new, qualified plug-in EVs (e.g., Tesla) and fuel cell electric vehicles (FCVs) (e.g., Toyota Mirai) purchased from a dealer. The credit is available to individuals and their businesses, and the vehicles must be bought for non-resale purposes and used primarily in the United States. Further eligibility requirements apply.

January 1 – April 17, 2023

The amount of the credit depends largely on timing. The Internal Revenue Service (IRS) defines the “placed in-service” date as the date the buyer took delivery, not necessarily when the vehicle was purchased. If the delivery date fell between January 1, 2023, and April 17, 2023, the credit amount is the total of the following:

  • Base amount of $2,500
  • Plus $417 for a vehicle with at least 7 kilowatt hours of battery capacity
  • Plus $417 for each kilowatt hour of battery capacity beyond 5 kilowatt hours
  • Maximum amount of $7,500

April 18, 2023

If a buyer took delivery of the vehicle on or after April 18, 2023, the credit amount is based on the same criteria listed above, but the vehicle also needs to meet these new mineral and battery component requirements:

  • $3,750 credit amount if vehicle meets critical minerals requirements only
  • $3,750 credit amount if vehicle meets battery requirements only
  • $7,500 if both requirements are met

Further Qualifications

In order to claim the credit, the vehicle, sale, and the buyers must all be qualified. Qualified vehicles have a battery capacity of at least 7 kilowatt hours, gross vehicle weight rating of less than 14,000 pounds, be made by a qualified manufacturer (FCVs do not need to meet this requirement) and undergo final assembly in North America. Purchasers can check vehicle eligibility using this website: https://fueleconomy.gov/feg/tax2023.shtml.

A sale is qualified if the vehicle is bought new, the seller reports required information at the time of the sale, and the vehicle’s manufacturer suggested retail price (MSRP) does not exceed $80,000 for vans, sport utility vehicles, or trucks; or $55,000 for other vehicles.

Qualified buyers must have a modified adjusted gross income (MAGI) of less than $300,000 for married filing jointly, $225,000 for head of households, and $150,000 for other filers. The MAGI amount can be from the year the delivery took place or the year prior to that, whichever is less.

Pre-Owned Vehicles

There is a tax credit available for pre-owned all-electric, plug-in hybrid, and FCVs purchased on or after January 1, 2023. The credit is equal to 30% of the sale price up to $4,000. The vehicle must be purchased from a licensed dealer, have a sales price of $25,000 or less, and must have a model year at least two years prior to the current calendar year. There are additional limitations, including buyers’ MAGI and prior ownership criteria, that must be met to qualify for this credit. See https://fueleconomy.gov/feg/tax2023.shtml for more details.

2024 Updates

Changes for 2024 allows dealers to use the $7,500 credit as a discount at the point of sale, so buyers are able to take the rebate immediately, rather than wait for their tax return to be filed. Essentially the buyer is transferring the credit amount to the dealership. This would be especially beneficial for taxpayers whose applicable credit would exceed their anticipated tax liability since the credit is nonrefundable and cannot be carried forward (see below for more information). All eligibility requirements still apply for the buyer, including MAGI, but the buyer is not able to claim the credit on their tax return. The dealership will claim the credit instead. This option is available at participating dealerships as of January 1, 2024.

Summary

If you are eligible for the credit, you will need to file IRS Form 8936 with your tax return in order to claim the amount available. You will need the associated Vehicle Identification Number (VIN) to complete the form. Since the credit is nonrefundable, it can reduce the amount of income tax due, but cannot increase a refund amount. For example, if you owe $5,000, the maximum EV tax credit can lower your liability to $0, but you will not be refunded the remaining $2,500. If you are unsure if you meet eligibility requirements, please visit https://fueleconomy.gov/.

You can also reach out to your trusted Louis Plung & Company advisor, or if you do not yet have an advisor, please email [email protected].

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