If your New Year’s resolutions included buying an electric vehicle this year, take heart. A revamped 2023 EV tax credit is a notable part of the Inflation Reduction Act, and the new law’s clean energy focus. Here are some of the changes, some are good, some not so good.
Some good news:
- For EVs placed into service after December 31, 2022, the Inflation Reduction Act extended the $7,500 EV tax credit for 10 years—until December 2032. The tax credit is taken in the year that you take delivery of the EV.
- Some used electric vehicles are eligible. Previously owned clean vehicles at least two years old have a separate tax credit of either up to $4,000 or 30% of the price of the vehicle, whichever is less.
- Under the Inflation Reduction Act, the EV tax credit applies to any “clean vehicle.” That means a hydrogen fuel cell car, or a plug-in hybrid vehicle with 4-7 kilowatt hours of battery capacity, could qualify.
- Starting in 2024, you will have the option to take the EV tax credit as a discount at the time you purchase the vehicle. By transferring the credit to the dealer, they would be able to lower the price of the vehicle by the amount of the credit, meaning that you won’t have to wait until you file your tax return to benefit from the EV tax credit.
- For home EV charging station installations, the tax credit is 30% of the costs of hardware and installation for qualified property. This tax credit is extended ten years, through December 31, 2032.
Some bad news:
- If you’re single, and your modified adjusted gross income is over $150,000, you won’t qualify for the EV tax credit. The EV tax credit income limit for married couples who are filing jointly is $300,000. And if you file as head of household and make $225,000 or more, you also won’t be able to claim the electric vehicle tax credit.
- Vans, pickup trucks, and SUVs with a manufacture’s retail suggested price (MSRP) of more than $80,000, won’t qualify for the credit. For clean cars to qualify for the EV tax credit, the MSRP can’t be more than $55,000.
- if you buy a used clean vehicle, it will only qualify for the tax credit if it costs $25,000 or less. And “used” or “previously owned” for purposes of the EV tax credit, means that the car is at least two years old.
- To spur domestic production of clean vehicles, the Inflation Reduction Act requires that the final assembly of qualifying clean vehicles occur in North America. The exact amount of the EV credit is based on a calculation that considers factors like the vehicle’s sourcing and assembly.
The North American assembly requirements, and income limits and price caps mean that a segment of high-earning car buyers won’t be able to claim the credit at all. How will you know whether the vehicle you want to buy will qualify for an EV tax credit under the Inflation Reduction Act?
Detailed drill down from the IRS HERE: https://www.irs.gov/pub/taxpros/fs-2022-42.pdf
And from the Department of Energy HERE: https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit
Some news regarding relief for EV buyers who had written, binding sales contracts from 2022 to purchase EVs that will be “delivered” on or after, August 16, 2022, or in 2023:
- If you purchased an electric vehicle before the Inflation Reduction Act became effective on August 16, 2022, and that vehicle is otherwise eligible for the old EV tax credit, you can claim that credit under the rules that applied before the Inflation Reduction Act became law.
- If you purchased and took possession of your EV between August 16, 2022, and December 31, 2022, the rules for claiming the EV tax credit before the new law, still apply, except that the final assembly requirement applies.
Contact Us: We are surely at a turning point where EVs will be the mainstream choice for the next generation. The question of which vehicles and buyers will qualify for the credits is complicated and will remain uncertain until Treasury issues the proposed rules in March. Until the Treasury issues its rules though, the requirements governing where minerals and parts must be sourced will be waived. This will allow eligible buyers to receive the full $7,500 tax incentive for qualifying models early in 2023. We will keep you posted on proposed EV tax credit regulations that should address sourcing requirements, as soon as they are released. Contact us at CPA@Fuoco.com or toll free at 855-542-7537.
