The Inflation Reduction Act brought some significant changes to the rules for the electric vehicles (EV) tax credit. The federal electric car tax credit is an incentive to encourage Americans to buy hybrid and electric vehicles by lowering the up-front costs of buying one. The credit is generally available only for qualifying electric vehicles for which final assembly occurred in North America, up to $7,500. Below is a brief summary of key changes related to the EV tax credit.
Qualifying electric vehicles
To qualify for the credit, the vehicle must be assembled in North America. The Department of Energy has provided a list of Model Year 2022 and early Model Year 2023 electric vehicles that may meet the final assembly requirement. Because some models are built in multiple locations, there may be vehicles on the Department of Energy list that do not meet the final assembly requirement in all circumstances. A reduced credit may be possible.
New income limits
EV tax credit will not be allowed to taxpayers with adjusted gross income over the following thresholds:
Single – $150,000; Head of household – $225,000; Married filing jointly – $300,000.
Limits on purchase price
The new incentives restrict qualifying vehicles to low-emissions trucks, SUVs, and vans with manufacturer’s suggested retail prices (MSRPs) of up to $80,000 and cars up to $55,000.
Used vehicles now qualify
In the past, EV tax credits were only obtainable when buying new vehicles. That has now changed under the Inflation Reduction Act, which in 2023 will introduce a tax credit for pre-owned electric vehicles that are two or more years old, cost $25,000 or less, weigh less than 14,000 pounds, and are purchased from a dealer. The credit covers up to 30% of the purchase price subject to maximum of $4,000. Additional income limit restrictions apply.
No more sales cap
On Jan. 1, 2023, manufacturers like GM and Tesla will not be limited on incentives to the first 200,000 EVs sold, which was the case under the old tax credits.
If you meet the income requirements and buy a qualifying vehicle, you must claim the EV tax credit on your annual tax filing for 2022 and 2023 on Form 8936, Qualified Plug-in Electric and Electric Vehicle credit. Under the old and new tax incentives, leased vehicles did not qualify and this credit is not refundable. You must have a minimum tax liability of $7,500 to maximize the credit. Any remaining unused balance cannot be rolled over from one year to another.
Lastly, depending on what state you live in, you may also qualify for a state tax credit. Reach out to our office with any questions you may have on how buying an EV can impact your tax situation.