Give Your Tax Return a Jolt With EV Credit

Renner Individual News; September 13, 2023

As the demand grows for electric vehicles and incentives to go green with clean vehicles, so too does the number of people claiming the Electric Vehicle credit. If you buy a new electric car, you may qualify for a credit of up to $7,500.

The tax credit is nonrefundable, which means the credit claimed cannot be more than the tax liability and cannot result in a refund.

“A tax credit is a dollar-for-dollar reduction of the taxes owed,” said Paige Mason, CPA, a tax manager at Renner and Company. “It seems the IRS is both expanding and restricting the rules for the EV credit.”

The Inflation Reduction Act, which passed in 2022, included many changes to the qualifications for the EV credit, depending on when the vehicle is purchased. Here’s a look at the requirements needed to claim the clean vehicle credit.

Vehicles Purchased Before Aug. 17, 2022

The credit ranges between $2,500 and $7,500, depending on the vehicle’s battery capacity. EVs purchased before Aug. 17, 2022, must meet the following requirements to qualify for this tax credit:

Have a battery life of at least 5 kilowatt-hours (kWh) capacity, an external charging resource, and a gross weight rating of no more than 14,000 pounds.
Bought new from an American manufacturer that did not sell more than 200,000 EVs. Tesla and General Motors have already hit that threshold for this period, and their customers cannot get this credit.

Buyers who purchased their EVs, or entered a written binding purchase contract with the seller before Aug. 16, 2022, have the option to take the credit without having to wait for the vehicle to be delivered.

“We will need to see the purchase agreement if you would like to claim this credit,” Paige said.

Vehicles Purchased Between Aug. 17 to Dec. 31, 2022

EVs purchased and placed in service in this period qualify for the same tax credit stated above; however, now final assembly must be completed in North America.

To find more information about a vehicle’s final assembly location, visit the U.S. Department of Energy website.

Vehicles Placed in Service from Jan. 1 to April 17, 2023

EVs placed in service in this period still need the final assembly location in North America and must now have a battery capacity of at least 7 kWh, to get the credit.

Further, the IRS removed the manufacturers’ sales cap of 200,000 EVs and amended the rules to include fuel cell electric vehicles (FCEV).

To be eligible for the credit, you must have a modified adjusted gross income (MAGI) below the following threshold:

$300,000 for joint filers
$225,000 for heads of households
$150,000 for all other filers

You must use the lesser of your modified AGI from the tax year you placed the vehicle in service or the prior year.

Lastly, the manufacturer-suggested retail price (MSRP) for the vehicle must be less than or equal to $80,000 to qualify for the credit.

Vehicles Placed in Service after April 18, 2023

EVs and FCEVs must meet the same requirements stated from Jan. 1 through April 18, 2023, and meet new critical mineral and battery component requirements.

If the vehicle only meets the critical minerals requirement or only the battery components requirement, you can only claim half of the credit for the one met. However, if both conditions are satisfied, you can claim the total tax credit of $7,500 on the vehicle.

Used EVs and FCEVs

The Inflation Reduction Act also created rules to claim a credit for used cars. Beginning January 2023, used EVs and FCEVs qualified for the clean vehicle credit of 30% of the sales price up to a maximum of $4,000.

The sales price of the used EV cannot be more than $25,000. The car model must be at least two years old, weigh less than or equal to 14,000 pounds, and have a 7 kWh battery capacity.

Taxpayers are ineligible for the credit if their modified AGI on a joint tax return exceeds $300,000 and if it exceeds $150,000 for single tax filers.

Commercial EVs and FCEVs

Starting Jan. 1, 2023, businesses and tax-exempt organizations that buy new EVs or FCEVs may qualify for the clean vehicle tax credit.

Maximum tax credits that may be claimed cannot exceed $7,500 for vehicles under 14,000 pounds with a 7 kWh battery or $40,000 for vehicles above 14,000 pounds with a 15 kWh battery.

While shopping for EVs/FCEVs, you can easily see all the relevant info, such as the vehicle’s weight, battery capacity, final assembly location, and VIN on the vehicle’s window sticker to help determine what tax credit, if any, the vehicle would qualify for.

The dealer may also be able to answer questions about qualification for the credit. It is essential to inquire from sellers about the clean vehicle credit information if not already informed, as it is the seller’s obligation to report this to buyers at the time of sale and later to the IRS.

“If you think you are purchasing a vehicle that qualifies for the credit, ask your dealer to confirm or reach out to us,” Paige said.

The IRS advises taxpayers to visit Fueleconomy.gov to get more information on a vehicle’s eligibility for the clean tax credit.

There are more changes coming for 2024. If you’re planning to buy an EV, you can transfer the clean vehicle credit to the dealer at the point of sale, where it can be used as a down payment toward your purchase rather than claim the credit on your tax return.

“The IRS has many tools that can be utilized in determining whether or not you qualify for the credit,” Paige said. “As vehicles continue to change and evolve, the IRS will continue to change the rules for this credit.”

There’s more to know about this. Please contact Renner and Company here to learn more about the clean electric tax credit or to see if you qualify.