Electric Vehicle Tax Credits
Looking to buy an electric car soon? Be alert to upcoming changes in related federal income tax credits that may impact your decision.
Under the recently-passed Inflation Reduction Act, federal income tax credits for electric and similar vehicles will look a little bit different starting 2023. Under the previous rule, a maximum $7,500 per vehicle credit was available for certain vehicles with manufacturer-based limits. Now there are no caps on manufacturers, but there ARE other limits.
Clean Vehicle Credit:
*A maximum $7,500 credit is available. 1) final assembly must be in North America for $3,750 + 2) a certain % of “critical minerals” used in production must be from certain countries including the US for another $3,750
*MSRP cannot exceed $55,000 for cars or $80,000 for vans, SUVs, and trucks
*Taxpayer income must be under $150,000 for single taxpayers, $300,000 married filing joint. Applicable income is the year of purchase or the previous year, whichever is lower.
*New vehicles only
*No manufacturer limits - Teslas and others will now qualify
*Vehicle must be purchased by December 31, 2032 (so you have awhile)
Previously Owned Clean Vehicle Credit:
*A maximum $4,000 per used vehicle.
*Taxpayer income must be under $75,000 for single taxpayers, $150,000 married filing joint. Applicable income is the year of purchase or the previous year, whichever is lower.
*Vehicle must be sold by a dealer. Only one used vehicle credit per vehicle.
*Vehicle must be purchased by December 31, 2032
To claim the credit on your tax returns - just as with the previous version of the credit - you’ll report the vehicle’s make, model, VIN, and purchase date.
There’s also a credit for vehicles used in a business - but you ACTUALLY have to use the vehicle in your business!
Are you in the market for a new electric car? If so, 2022 may be a better year to buy if you’re primarily concerned about income or vehicle price limits nixing your tax benefit. If you’re more interested in the credit applying to a broader selection of manufacturers, you may be better off waiting until 2023. With that said, everyone’s tax situation is different, so make sure you consult your tax advisor.