Otis Singleton
The federal electric vehicle (EV) tax credit is worth up to \$7,500 for new vehicles and \$4,000 for used vehicles. The credit is available to individuals and businesses that purchase a qualifying EV. To claim the credit, you must file Form 8936 with your tax return and meet certain requirements, such as income limitations and the vehicle's manufacturer suggested retail price (MSRP). The credit can lower your tax liability but is non-refundable, meaning you won't receive any excess credit as a refund. Additionally, you cannot carry over any unused amount to future tax years.
| Characteristics | Values |
|---|---|
| Tax credit amount | Up to $7,500 for new electric vehicles and up to $4,000 for used electric vehicles |
| Vehicle type | Plug-in electric or fuel cell with a minimum of 7 kilowatt hours of battery capacity |
| Vehicle weight | Less than 14,000 pounds |
| Purchase price | $25,000 or less |
| Vehicle age | At least two years old |
| Claim frequency | Once every three years |
| Form to claim credit | Form 8936 |
| Time to claim credit | At the time of sale or when filing taxes |
| Credit transfer | Can be transferred to a registered dealer for an immediate discount |
| Credit refundability | Non-refundable for individuals; excess credit can be carried forward for businesses |
| Income limitations | Modified adjusted gross income (AGI) of $300,000 for married couples filing jointly or a surviving spouse |
| Vehicle price | Manufacturer suggested retail price (MSRP) of $80,000 or less for vans, SUVs, and pickup trucks |
| Additional incentives | State and local incentives, such as California's Clean Air Vehicle program and New York's state-level rebate |
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What You'll Learn
Claiming the credit as an individual or business
If you are an individual who has purchased a new or used electric vehicle (EV) or fuel cell vehicle (FCV), you may qualify for a federal tax credit of up to $7,500 under Internal Revenue Code Section 30D. To be eligible, your vehicle must be a new, qualified plug-in EV or FCV, and your modified adjusted gross income (AGI) must not exceed $300,000 for married couples filing jointly or a surviving spouse. You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever results in a lower AGI. If your modified AGI is below the threshold in one of the two years, you can claim the credit.
To claim the credit, you must file Form 8936, Clean Vehicle Credits, with your tax return for the year in which you take delivery of the vehicle. This is true whether you transferred the credit at the time of sale or plan to claim it when you file your taxes. You will need to provide your vehicle's Vehicle Identification Number (VIN), which can be found on the window sticker. The dealer should give you a paper copy of a time-of-sale report when you complete your purchase.
If you are a business owner, you may also be eligible for the commercial clean vehicle credit under IRC 45W. This credit is available for businesses and tax-exempt organizations and allows you to claim tax breaks for a wider range of eligible electric vehicles, including those not manufactured in the US. To be eligible, you must be the owner of the vehicle, and the vehicle must meet certain requirements, such as being used primarily in the US. Additionally, the vehicle's manufacturer suggested retail price (MSRP) cannot exceed $80,000 for vans, sport utility vehicles, and pickup trucks.
If you install qualified vehicle refueling and recharging property, such as electric vehicle charging equipment, at your home or business location, you may also be eligible for the Alternative Fuel Vehicle Refueling Property Tax Credit. This credit can help reduce the costs associated with the installation of such equipment.
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Requirements for a qualifying vehicle
To qualify for the federal electric vehicle tax credit, you must purchase a new, qualifying plug-in electric vehicle (EV) or fuel cell electric vehicle (FCV). The vehicle must be purchased within the specified time frames, which are either after December 31, 2009, through December 31, 2022, or from January 1, 2023, through December 31, 2032.
The vehicle's manufacturer suggested retail price (MSRP) must not exceed $80,000 for vans, sport utility vehicles, and pickup trucks. The MSRP includes manufacturer-installed options, accessories, and trim but excludes destination fees. The vehicle must also meet certain criteria, such as having a minimum of 7 kilowatt-hours of battery capacity and meeting new critical mineral and battery component requirements.
Additionally, the vehicle must be used primarily in the United States, and your modified adjusted gross income (AGI) must not exceed $300,000 for married couples filing jointly or a surviving spouse. You can use your modified AGI from the year you take delivery of the vehicle or the previous year, whichever is less.
It is important to note that the tax credit is non-refundable, and any excess value cannot be claimed on future tax returns if you are claiming it as an individual. 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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Claiming the credit at the time of sale
Claiming the federal electric vehicle tax credit at the time of sale is an option for those who are buying a qualifying clean vehicle. This option will be available from January 1, 2024. Essentially, the credit is transferred to the dealer, who then lowers the vehicle price by the amount of the credit. This means that you benefit from the tax credit immediately, rather than having to wait until you file your tax return.
To be eligible for the credit, your vehicle must meet several IRS specifications, including price caps and manufacturing guidelines. The vehicle's manufacturer suggested retail price (MSRP) must not exceed $80,000 for vans, sport utility vehicles, and pickup trucks. The vehicle must also be built in North America to qualify for the full credit.
To be eligible to offer this credit, dealers must register with the IRS Energy Credits Online. They will then be able to transfer the value of the federal EV tax credit to eligible consumers. This value can be offered as a cash refund or a discount on the total price of the electric vehicle.
To claim the credit at the point of sale, you will need to authorize the IRS to transfer the credit to the dealership. The dealer should then provide you with a copy of the "time-of-sale report" to confirm that the report was accepted. This document will be needed when filing your tax return.
It is important to note that the tax credit is non-refundable, which means that it can lower or eliminate your tax liability, but you will not receive any overage of the credit as a refund. Additionally, you will not be able to carry over any excess amount to offset future taxes.
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Claiming the credit on your tax return
If you purchased a qualifying plug-in EV or clean vehicle during the required timeframes (either after December 31, 2009, through December 31, 2022, or January 1, 2023, through December 31, 2032), you can claim the respective credit by filling out Form 8936 and attaching it to your Form 1040 when you file your tax return.
The Qualified Plug-In Electric Drive Motor Vehicle Credit and the new Clean Vehicle Credit are each worth up to $7,500. The Qualified Plug-In Electric Drive Motor Vehicle Credit has been replaced with the Clean Vehicle Credit for qualifying vehicles purchased after December 31, 2022. The credit for personal vehicles is non-refundable, and any excess value can’t be claimed on future tax returns. However, if you’re claiming the credit as a depreciable business asset, you can carry forward any unused portion as a general business credit.
The credit isn’t refundable if you’re claiming it as an individual, so you won’t be able to get back any credit value in excess of the taxes you owe. Also, you can’t 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. If you’re claiming the credit as a business, any excess credit value not used in the year of acquisition can be carried forward to future years.
If you entered into a written binding contract to buy a qualifying vehicle beginning January 1, 2021, and before August 16, 2022, but took delivery on or after August 16, 2022, you may elect to claim the credit based on the rules prior to changes made by the Inflation Reduction Act. If you choose to use these prior rules on your 2022 tax return, you will need to claim it on that tax return after you take delivery of the vehicle. Depending on when you took delivery of the vehicle, you can claim the credit on your original, superseding, or amended 2022 tax return.
Starting January 1, 2024, if you purchase a new or pre-owned EV, you may be able to effectively lower the vehicle’s purchase price by transferring the clean vehicle tax credit to a registered dealer. This credit can be claimed at the time of sale rather than waiting to claim the credit on next year’s tax return.
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Additional state and local incentives
In addition to federal tax credits, you may be eligible for additional state and local incentives when purchasing an electric vehicle. These incentives vary depending on your location, but here are some examples:
State and Local Utility Incentives
Many states and local utility companies offer incentives for electric vehicle owners. For instance, Alabama Power provides a discounted TOU rate for residential customers who own or lease an electric vehicle. Similarly, PG&E, SCE, and SDG&E customers can earn $60 per kW by allowing Tesla to own the Solar Renewable Energy Credits (SRECs) generated by their systems. Central Coast Community Energy (3CE) also offers an incentive of up to $500 per kWh on battery installations to optimize energy savings.
Non-Cash Incentives
Some states offer non-cash incentives for electric vehicle owners, such as carpool lane access and free municipal parking. These perks can save you time and money, making electric vehicles even more attractive and convenient.
Rebates
Depending on your state and local regulations, you may be able to claim rebates after purchasing an electric vehicle. These rebates can help offset the cost of your purchase, making electric vehicles more affordable. Alternatively, some rebates can be applied directly to reduce the purchase price of your vehicle, providing instant savings.
Income Tax Credits
In addition to federal income tax credits, certain states offer their own income tax credits for electric vehicle purchases. For example, as of 2023, Powerwall (with or without solar) qualifies for the Investment Tax Credit. Consult a tax professional or refer to your state's official website for specific information regarding these tax credits.
Dealership Incentives
When purchasing an electric vehicle, consider checking with your dealership for potential incentives. Dealerships often have experience processing the vehicle tax credit and can guide you through the process. In some cases, they may even offer additional incentives or discounts to make your purchase more appealing.
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Frequently asked questions
The federal electric vehicle tax credit can be up to $7500 for a single tax year.
To claim the tax credit, you need to file IRS Form 8936, the Qualified Plug-in Electric Drive Motor Vehicle Credit form. You will need the dealer's report, your vehicle's VIN, and other details.
The eligibility criteria include purchasing the vehicle new, having a manufacturer's suggested retail price (MSRP) below a certain threshold, a battery capacity of at least 7 kilowatt-hours, and a gross vehicle weight rating of less than 14,000 pounds. The vehicle must also be made by a qualified manufacturer or undergo final assembly in North America.
No, you cannot personally claim the tax credit on a leased vehicle because the automaker's bank is the owner. However, some manufacturers pass the savings to consumers by reducing upfront costs or monthly payments.
The deadline for claiming the tax credit is the year in which you take delivery of the vehicle. The tax credit is non-refundable, so you cannot get a refund if you do not claim it by the deadline.
