Claiming Electric Vehicle Tax Credits: Turbotax Guide

Electric vehicle owners can claim a federal tax credit to reduce the cost of their environmentally-friendly choice. The credit is worth up to $7,500 for new vehicles and up to $4,000 for used vehicles, depending on income. To claim the credit, electric vehicle owners can use Form 8936, which is used to determine the tax credit value for certain qualified vehicles, or Form 8834, which is used to claim electric vehicle passive activity tax credits from prior tax years.

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Claiming the credit as a depreciable business asset

If you are claiming the credit as a depreciable business asset, you can carry forward any unused portion as a general business credit. The Qualified Plug-In Electric Drive Motor Vehicle Credit is a tax credit available for certain new, plug-in electric vehicles (EVs) placed in service before 2023. The credit is worth up to $7,500 under Internal Revenue Code Section 30D.

The credit is non-refundable if you are claiming it as an individual, so you won't be able to get back any credit value in excess of the taxes you owe. You also cannot apply any excess credit value to future tax years, meaning you can only claim the full $7,500 value in one year or forfeit the unused balance. However, if you are claiming the credit as a business, any excess credit value not used in the year of acquisition can be carried forward to future years.

To file Form 8936 and claim the Qualified Plug-In Electric Drive Motor Vehicle Credit, you must have purchased the car before January 1, 2023. For qualifying vehicles purchased after this date, you can claim the Clean Vehicle Credit. You will need to complete the form with the VIN for your electric vehicle. Form 8936 is also used to determine your tax credit value for certain qualified two or three-wheeled plug-in EVs.

In addition to the buyer filing Form 8936, the seller or dealer is required to report certain information about the vehicle to both the buyer and the IRS. Beginning in 2024, you can opt to transfer the clean vehicle credit directly to an automotive dealer instead of waiting to claim it on your tax return the following year. The new clean vehicle credit also covers pre-owned clean vehicles starting in 2023.

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Clean Vehicle Credit qualifications

To qualify for the Clean Vehicle Credit, you must meet several requirements. Firstly, you need to have purchased a new, qualified plug-in electric vehicle, fuel cell electric vehicle, or used electric vehicle after December 31, 2022. The previous credit, the Qualified Plug-In Electric Drive Motor Vehicle Credit, applied to vehicles placed in service before 2023.

For new clean vehicle purchases, your modified adjusted gross income (MAGI) for the current or previous year must be below a certain threshold. These thresholds vary depending on your filing status. For example, if you file taxes jointly with your spouse or as a surviving spouse, your MAGI must be $300,000 or less. On the other hand, if you file as the head of a household, your MAGI must be $225,000 or less.

For used clean vehicle purchases, the income thresholds are lower. If you file taxes jointly or as a surviving spouse, your MAGI must be $150,000 or less. For those filing as the head of a household, the threshold is $112,500 or less. Additionally, used vehicles must have a sale price of $25,000 or less, including dealer-imposed costs or fees, and exclude taxes, title, and registration fees. The vehicle's model year must also be at least two years earlier than the calendar year of purchase.

Other factors that determine eligibility for the Clean Vehicle Credit include the vehicle's assembly location, battery size, and the location of extraction, processing, recycling, manufacturing, and assembly of the battery's components. The manufacturer's suggested retail price (MSRP) is also a factor, with different vehicle types having maximum MSRP limits. For example, vans, sport utility vehicles, and pickup trucks cannot exceed an MSRP of $80,000.

It is important to note that the Clean Vehicle Credit is non-refundable for individuals, meaning any excess credit value cannot be applied to future tax years or refunded if it exceeds your tax liability. However, if you are claiming the credit as a depreciable business asset, you can carry forward any unused portion as a general business credit.

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State and local incentives

Rebates can be claimed at or after the purchase of an electric vehicle, while tax credits are claimed when filing income taxes. You can also benefit from non-cash incentives, such as carpool lane access and free municipal parking. Some communities and utility companies also offer additional incentives through cashback, discounted rate plans, and other credits.

For example, Alabama Power offers discounted TOU rates to residential customers who own or lease an electric vehicle. Similarly, SRP and APS offer reduced electricity rates based on time-of-use charging for EV owners. Tucson Electric Power offers three pricing plans for electric vehicle charging, allowing customers to reduce their energy bills by charging their EV during off-peak hours.

Central Coast Community Energy (3CE) offers an incentive of up to $500 per kWh on battery installations to optimize energy savings and load shifting. PG&E, SCE, and SDG&E customers can earn $60 per kW by giving Tesla ownership of the Solar Renewable Energy Credits (SRECs) their system generates.

To find out about specific incentives in your area, you can review the sponsoring entity's website for details on eligibility, redemption, and program rules.

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Dealer certification

When you purchase your electric vehicle, your dealer should certify whether the vehicle is eligible for the tax credit. In most cases, the dealer certification alone qualifies the vehicle for the credit, and you won't need any additional documents from the manufacturer to support your eligibility.

The dealer/seller of a new clean vehicle must provide a report to you and the IRS, providing the information required to claim the credit. This includes the vehicle identification number (VIN) and other information about the vehicle. The dealer certification alone usually qualifies the vehicle for the credit.

The dealer/seller of a previously owned clean vehicle must also provide a report to you and the IRS, which includes the vehicle's VIN and other information. This report is necessary for claiming the credit. The vehicle must have been purchased from a dealer and be the first transfer since August 16, 2022, to an individual eligible to claim the credit.

The federal EV tax credit, now known as the clean vehicle credit, is worth up to $7,500. The previous credit was limited to the number of electric vehicles a manufacturer could sell. The new credit covers pre-owned clean vehicles starting in 2023, and you can opt to transfer the clean vehicle credit directly to an automotive dealer instead of waiting to claim it on your tax return the following year.

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Passive activity credits

To claim passive activity credits for an electric vehicle, you need to use IRS Form 8834. This form is used to claim any qualified electric vehicle passive activity credits allowed for the current tax year. At the top of the form, enter the taxpayer name and Social Security number as they appear on the income tax return. In Line 1, enter the qualified electric vehicle passive activity credit amount that was allowed for your current tax year. You may have to refer to the IRS instructions for either Form 8582-CR or Form 8810 for more details.

In Line 2, enter the tax liability before accounting for any tax credits. Individual taxpayers will enter the sum of the following: IRS Form 1040, 1040-SR, or 1040-NR, Line 16 (tax liability) Schedule 2, Line 2 (Excess advance premium tax credit repayment from IRS Form 8962). For corporations, enter the amount from IRS Form 1120, Schedule J, Line 2, or the applicable line from your income tax return. Estates and trusts will enter the sum of the following amounts:

• From Schedule G, enter the total of any credits on Line 2e (not including any alternative fuel vehicle refueling property credit (personal use part) from Form 8911, Line 19; or any credits from lines 2a through 2d).
• From Schedule J, enter the total of any credits on Line 6 (not including any credits from Lines 5a and 5c through 5e).
• Add Lines 3a and 3b, and enter the sum in Line 3c.
• Subtract Line 3c from Line 2, and enter the result in Line 4. If this results in zero or a negative number, enter ‘0’ here and in Line 7.
• For individuals, enter the alternative minimum tax amount from IRS Form 6251, Line 9.
• Corporations should enter ‘0’, as corporations are exempt from AMT for tax years starting after 2017.

Note that you can only use Form 8834 to claim passive activity credits for electric vehicles placed into service before 2007. For vehicles placed into service after 2022, you must use Form 8936 to calculate the new EV tax credit.

Frequently asked questions