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FINANCIAL NEWS

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 electric vehicles.

Update:
Car that qualify for the $7,500 clean vehicle tax credit and how to claim it
BRENDAN MCDERMIDREUTERS

The Inflation Reduction Act passed by Congress and signed into law by President Joe Biden in 2022 included a modification to the federal tax credit for Americans who purchase an electric vehicle. The new rules for the $7,500 IRS credit only apply to new vehicles purchased after 1 January 2023 but if you bought a car last year, your EV may qualify for the prior rules.

One major change to the Internal Revenue Code Section 30D, which the credit falls under, is that the electric vehicle must have its final assembly be in North America, this also applies to vehicles bought last year after 16 August. 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.

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. You can use your income from the year that you purchase the new vehicle or the prior 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.

For a vehicle to be eligible, it must:

  • Have a battery capacity of at least 7 kilowatt hours
  • Have a gross weight class of less than 14,000 pounds
  • Be manufactured by a qualified manufacturer
  • The sale qualifies only if the vehicle is new
  • At the time of sale, sellers must report the required information to you and the IRS (your name and tax identification number )

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.

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