Wiktor Wise
Electric vehicles are becoming an increasingly popular option for those looking to reduce their carbon footprint. With the recent focus on electric vehicles, many are wondering if they are eligible for tax credits. Tax credits for electric vehicles are available at both the federal and state levels. The federal tax credit is a benefit for those who purchase qualifying new or used electric vehicles, with a maximum credit of $7,500 for new vehicles and $4,000 for used vehicles. To be eligible for the federal tax credit, the vehicle must be purchased new and have a manufacturer suggested retail price (MSRP) below a certain threshold, be placed in service in a specific time frame, and meet other requirements. State and local tax incentives may also apply, such as California's Clean Air Vehicle program, which grants carpool lane access to select electric vehicles.
Electric Vehicles Still Eligible for Tax Credit
| Characteristics | Values |
|---|---|
| Vehicle Type | New or used electric vehicles, plug-in electric vehicles, fuel cell vehicles, and plug-in hybrid vehicles |
| Vehicle Price | The manufacturer's suggested retail price (MSRP) must be under $55,000 for cars, under $80,000 for SUVs, trucks, and vans |
| Buyer's Income | Under $150,000 to 300,000, depending on tax filing status |
| Battery Requirements | A certain percentage of the battery components must be manufactured or assembled in the US or any country with a free-trade agreement with the US |
| Final Assembly | Must be assembled in North America |
| Time of Sale | Starting January 1, 2024, credit eligibility and amount will be determined at the time of sale using the IRS Energy Credits Online website |
| Credit Amount | Up to $7,500 for new vehicles, up to $4,000 for used vehicles |
| Credit Usage | Can be claimed on tax returns or transferred to a dealer to reduce the purchase price |
| State and Local Incentives | Some states offer additional incentives, such as California's Clean Air Vehicle program and New York's state-level rebate |
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What You'll Learn
Plug-in electric vehicles (EVs)
To be eligible for the credit, the vehicle must be new, and the manufacturer must not have sold more than 200,000 EVs in the US. Additionally, the vehicle must be made for use primarily in the US, and its final assembly must have taken place in North America, which includes the United States, Puerto Rico, Canada, and Mexico. The vehicle's manufacturer suggested retail price (MSRP) must also not exceed $80,000 for vans, sport utility vehicles, and pickup trucks.
For vehicles purchased between August 17, 2022, and December 31, 2022, the same rules apply, but the vehicle must also undergo final assembly in North America. If you purchased a vehicle in 2021 but did not take delivery until 2022, you may still be able to claim the credit for 2022 by filing an amended return for the tax year in which you took possession of the vehicle.
Starting in 2023, the availability of the tax credit for new plug-in electric vehicles will depend on several factors, including the vehicle's MSRP, its final assembly location, battery component and/or critical minerals sourcing, and your modified adjusted gross income (AGI). The credit can be claimed on your tax return or transferred to the dealer to reduce the final purchase cost.
In addition to federal tax credits, some states offer additional incentives for electric vehicle purchases. For example, California's Clean Air Vehicle program grants carpool lane access to select electric vehicles, and New York offers a state-level rebate of up to $2,000 on top of the federal tax credit. It is important to note that some states may not allow you to claim both a state-level rebate and a federal tax credit.
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Fuel cell vehicles (FCVs)
The benefits of FCVs include their potential to significantly reduce dependence on foreign oil and lower harmful emissions that contribute to climate change. The major components of a typical FCV include the fuel cell stack, which converts hydrogen gas stored onboard with oxygen from the air into electricity, powering the vehicle's electric motor.
However, there are also challenges to the widespread adoption of FCVs. For instance, FCVs are currently more expensive than conventional vehicles and hybrids, and their durability is not yet on par with internal combustion engines. Additionally, there is limited hydrogen infrastructure, with a small number of hydrogen fuelling stations available to the public.
FCVs that are purchased new in 2023 or after may be eligible for a federal income tax credit of up to $7,500. This credit is available for all-electric, plug-in hybrid, and fuel cell electric vehicles. The availability of the credit depends on factors such as the vehicle's MSRP, final assembly location, and your modified adjusted gross income (AGI). To claim the credit, you must complete and submit relevant forms, such as Form 8936, and provide the necessary vehicle information.
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Final assembly location
The final assembly location of an electric vehicle is listed as the “final assembly point” on the window sticker of the vehicle. This information can also be found by using the VIN Decoder tool on the Department of Energy's page for Electric Vehicles with Final Assembly in North America.
The final assembly location is an important factor in determining a vehicle's eligibility for tax credits. For vehicles placed in service on or after January 1, 2023, the Clean Vehicle Credit provisions are subject to updated guidance from the IRS and the U.S. Department of the Treasury. The Inflation Reduction Act of 2022 added a new requirement for final assembly in North America, which took effect on August 17, 2022. This means that for new electric, fuel cell electric, and plug-in hybrid electric vehicles acquired, delivered, and placed in service after August 16, 2022, the final assembly must be in North America.
It is important to note that the final assembly location is not the only factor in determining eligibility for tax credits. Other factors include the date of purchase, the vehicle's manufacturer suggested retail price (MSRP), and the buyer's income.
The eligibility requirements for tax credits are subject to change, and it is recommended to refer to the IRS website and the FuelEconomy.gov website for the most up-to-date information.
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Modified adjusted gross income (AGI/MAGI)
Modified Adjusted Gross Income (MAGI) is a metric used by the Internal Revenue Service (IRS) to determine eligibility for certain tax benefits, subsidies, and assistance programs. MAGI is calculated by taking your Adjusted Gross Income (AGI) and adding back certain items of income and deductions. These deductions can include mortgage interest, property taxes, charitable contributions, and medical expenses.
MAGI is used to determine eligibility for specific programs like qualified retirement account contributions, the student loan interest deduction, and the Child Tax Credit. MAGI can also impact eligibility for income-based Medicaid coverage or health insurance subsidies.
In the context of electric vehicle tax credits, your MAGI must not exceed certain thresholds to claim the credit. These thresholds depend on your filing status. For example, if filing jointly or as a surviving spouse, the MAGI limit is $300,000, while the limit is $225,000 if you file as head-of-household. Remaining taxpayers cannot have a MAGI over $150,000 to claim the credit.
It's important to note that MAGI calculations can vary depending on the specific tax credit or program, so it's always a good idea to consult official sources or tax professionals for the most accurate and up-to-date information.
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State and local incentives
When it comes to state and local incentives for electric vehicles, there are a few things to keep in mind. Firstly, state and local tax incentives may apply in addition to federal tax credits. It is important to be aware of any restrictions that come with applying for multiple incentives, as some states may not allow "double-dip" claims.
For example, California's Clean Air Vehicle program grants carpool lane access to select electric vehicles. In New York, you might be eligible for a state-level rebate of up to $2,000 on top of the federal tax credit.
It is worth noting that individual consumers cannot claim the EV tax credit when leasing an EV. However, they might still benefit from some cost savings passed down from the dealer if they choose to lease. Additionally, some businesses, such as dealerships and leasing agencies, may qualify for another type of tax credit called the commercial vehicle tax credit.
To ensure you receive the correct incentives, it is important to check with your specific state and local authorities, as well as review the eligibility requirements for any incentives you plan to claim.
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Frequently asked questions
The EV tax credit is a federal tax benefit for those who purchase qualifying new or used electric vehicles.
People who buy new electric vehicles may be eligible for a tax credit of up to $7,500, and used electric car buyers may qualify for up to $4,000.
You can claim the credit on your tax return for the year in which the vehicle was placed in service. You will need to fill out Form 8936, reporting your eligibility for the credit. You can also transfer the credit to the dealer and get a discount at the time of purchase.
The eligibility depends on the timing of the vehicle's acquisition, your income level, and whether the vehicle itself is eligible. The vehicle's manufacturer suggested retail price (MSRP) cannot exceed $80,000 for vans, SUVs, and pickup trucks. The vehicle must also undergo final assembly in North America.
Some states offer additional incentives on top of federal tax credits. For example, California's Clean Air Vehicle program grants carpool lane access to select electric vehicles, and New Yorkers may be eligible for a state-level rebate of up to $2,000.
