What cars qualify for a clean vehicle tax credit? How to claim the credit
The Inflation Reduction Act passed by Congress last year included enticements to go green, including a $7,500 tax credit for new plug-in electric vehicles (EV) and fuel cell vehicles (FCV).
The Inflation Reduction Act passed by Congress and signed into law by President Joe Biden in August 2022 included a modification to the federal tax credit for Americans who purchase an electric vehicle (EV) or fuel cell vehicle (FCV) between 2023 and 2032. The credit is available to individuals and their businesses.
The new rules for the $7,500 IRS credit only apply to new EVs purchased after 1 January 2023; however, if you bought a car last year (2022), your EV may qualify for a clean vehicle tax credit under the previous rules.
One major change to the Internal Revenue Code Section 30D, which the credit falls under, is that the purchased electric vehicle must have undergone its final assembly in North America - this also applies to vehicles bought after 16 August 2022. There are a few other requirements in order to qualify for the credit. We’ll walk you through what those are and how to apply for the credit.
If you take possession of a new clean vehicle on or after 18 April 2023, it must meet critical mineral and battery component requirements to qualify for the credit. This applies even if you bought the vehicle before 18 April.
Who qualifies for the $7,500 credit?
Not everyone can qualify for the credit with the modified adjusted gross income thresholds set at $150,000 for single filers and $300,000 for those who are married and file jointly. The limit for heads of households is set at $225,000.
The amount of the credit depends on when you placed the vehicle in service (ie. took delivery), regardless of purchase date.
The credit is nonrefundable, so you can’t get back more on the credit than you owe in taxes. You can’t apply any excess credit to future tax years.
You can use your income from the year that you purchase the new vehicle or the previous year, whichever is lower. Above those levels you won’t qualify for the clean vehicle tax credit, but over 70 percent of Americans earn less than $150,000.
You can claim the credit through Form 8936 with your tax return. It is necessary to take into account that you must provide the Vehicle Identification Number (VIN) of your vehicle.
Nor do all vehicles qualify for the credit either with a maximum manufacturer’s suggested retail price (MSRP) of up to $80,000 for vans, sport utility vehicles and pickup trucks, and $55,000 for other vehicles. The MSRP is the suggested retail price the manufacturer sets including options, accessories and trim but excluding destination fees. However, it is not necessarily the price you pay.
Besides the final assembly in North America requirement there are others that the vehicle must meet to qualify for the full $7,500 credit.
Vehicle requirements to qualify for the $7,500 credit?
The Treasury Department and IRS will be issuing guidance on the clean vehicle tax credit in the future which will change the way the credit is calculated. Once issued, there will be two parts to the credit, critical minerals and battery components. Each requirement will be eligible for $3,750 tax credit. Vehicles that meet both are eligible for a total tax credit of $7,500.
For the time being though the previous formula will be used to calculate the tax credit of no more than $7,500. The base credit is $2,500 and the vehicle must draw propulsion energy from an battery with no less than 7kWh capacity, which tacks an additional $417 to the credit. Each additional kWh over 5kWh adds an additional $417 to the credit up to the cap. Here are some other requirements.
Which vehicles are eligible for the $7,500 tax credit?
Car buyers can check if the vehicle they are looking at on the car lot meets the final assembly location requirement for the $7,500 clean vehicle tax credit by using the Vehicle Identification Number (VIN) Decoder on the Department of Energy’s webpage.
The IRS provides a list of qualified manufacturers some of which have provided specific makes and models that are eligible. These include Audi, BMW, Cadillac, Chevrolet, Chrysler, Ford, Jeep, Lincoln, Mercedes, Nissan, Rivian, Tesla, Volvo and Volkswagen.
Beginning in 2024, buyers will be able to transfer clean vehicle credits to dealers at the time of sale, and use the credit amount as a down payment at time of sale. To participate, dealers will need to register with the IRS in the future.
The amount of the credit depends on when you placed the vehicle in service - ie. the date when you took delivery of the EV, regardless of when you purchased it.