Tax Credits for Electric Cars

If you're thinking of switching to an electric-powered car, now may be the right time.

electric car and vehicle tax credit

Purchasing a new plug-in electric vehicle (EV) or a fuel cell vehicle (FCV) in 2023 and 2024 can earn you a clean vehicle tax credit.

Here are the details about credits for personal use of clean vehicles, commercial clean vehicles, and plug-in EVs.

Eligibility Criteria

You might be eligible to claim a tax credit of up to $7,500 under the Internal Revenue Code Section 30D upon purchasing a new, qualifying plug-in EV or FCV.

The Inflation Reduction Act of 2022 revised the guidelines for these credits, targeting vehicles bought between 2023 to 2032.

Both individuals and their associated businesses can avail of this credit.

To be eligible:

  • The vehicle should be for personal or business use, not resale.
  • It should be mainly operated within the U.S.
  • Your modified adjusted gross income (AGI) must be below:
  • $300,000 for couples filing together.
  • $225,000 for household heads.
  • $150,000 for other taxpayers.

You can consider your modified AGI from either the year of the vehicle's delivery or the preceding year, opting for the lesser amount. If your modified AGI is within the bracket in one of these two years, you're eligible for the credit.

However, this credit is non-refundable, meaning it can't exceed what you owe in taxes, and you can't forward any surplus credit to subsequent tax years.

Credit Breakdown

The credit's value relies on the vehicle's service initiation date, not its purchase date. For vehicles operational from January 1 to April 17, 2023:

  • Base credit: $2,500.
  • Additional $417 for vehicles with a minimum of 7 kilowatt hours of battery capacity.
  • An extra $417 for every kilowatt hour over 5 kilowatt hours, maxing at $7,500.

From April 18, 2023 onwards, vehicles must adhere to the same standards but also meet specific mineral and battery component prerequisites for credit values of:

  • $3,750 for meeting either the mineral or battery component criterion.
  • $7,500 for satisfying both. Vehicles not meeting any criteria won't qualify for the credit.

Which Vehicles are Eligible?

A qualifying vehicle should:

  • Possess a battery capacity of at least 7 kilowatt hours.
  • Weigh under 14,000 pounds.
  • Be manufactured by a recognized manufacturer, except for FCVs. (Refer to Rev. Proc. 2022-42 for comprehensive guidelines).
  • Undergo its final assembly in North America.
  • From April 18, 2023, adhere to specified mineral and battery component criteria.

Moreover, only brand-new vehicles qualify, and sellers must report essential transaction details to the buyer and the IRS. Eligibility also depends on the vehicle's manufacturer-suggested retail price (MSRP):

  • Up to $80,000 for vans, SUVs, and trucks.
  • Up to $55,000 for other models.

Vehicle details, such as weight, battery capacity, and final assembly location, are available on its window sticker.

To check your vehicle's eligibility for the clean vehicle credit, click the link below.

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How to Claim the Electric Car Tax Credit

To claim the credit, file Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles) with your tax return.

Online tax software asks you simple questions to fill in the proper forms and helps you claim every electric car tax credit and deduction that you qualify for, and you will get the largest refund possible.

You never have to know the tax laws or rules during the filing process!