As a tax advisory and preparation firm in Arizona, in Professional Taxes we provide the latest updates regarding the IRS credits for electric vehicles (EVs) under the Inflation Reduction Act of 2022. These credits are designed to encourage the purchase of clean vehicles and apply to both new and used electric vehicles. Below is a detailed overview, including information on whether the credits are refundable.
1. Tax Credits for New Electric Vehicles (Clean Vehicle Credit)
The IRS offers a federal tax credit for new clean vehicles purchased in 2023 or later under the Clean Vehicle Credit. Here are the key details:
Credit Amount: Up to $7,500 for new qualifying electric vehicles.
Eligibility Requirements:
The vehicle must have its final assembly in North America.
The vehicle must be either a fully electric, plug-in hybrid, or hydrogen fuel cell vehicle.
The vehicle's battery must meet the critical minerals sourcing requirement, which mandates that a percentage of battery components come from North America or countries with free trade agreements with the U.S.
Income Limits: The buyer's income must fall under specific thresholds to claim the credit:
$300,000 for married couples filing jointly.
$225,000 for heads of household.
$150,000 for other filers.
Vehicle Price Limits: The maximum manufacturer’s suggested retail price (MSRP) for eligible vehicles is capped at:
$80,000 for SUVs, pickup trucks, and vans.
$55,000 for other vehicles (sedans, etc.).
Refundable Status: The credit is non-refundable, meaning it can reduce your tax liability to zero, but you will not receive any excess amount as a refund if your tax liability is less than the credit.
2. Tax Credits for Used Electric Vehicles (Previously Owned Clean Vehicle Credit)
The IRS also offers a credit for the purchase of used clean vehicles, encouraging wider adoption of electric vehicles by making them more affordable.
Credit Amount: Up to $4,000 or 30% of the sales price (whichever is lower).
Eligibility Requirements:
The vehicle must be purchased from a licensed dealer.
The vehicle must be at least two years old at the time of sale.
The purchase price of the vehicle must not exceed $25,000.
The vehicle must have a battery with at least 7 kilowatt-hours of capacity and must be fully electric, a plug-in hybrid, or hydrogen fuel cell.
Income Limits: The buyer’s modified adjusted gross income (AGI) must fall under these limits:
$150,000 for married couples filing jointly.
$112,500 for heads of household.
$75,000 for other filers.
Refundable Status: This credit is also non-refundable, meaning it can lower your tax liability but will not result in a refund if the credit exceeds the tax owed.
3. Important Considerations
How to Claim the Credit: You can claim the credit for both new and used electric vehicles when submit your tax return. Make sure to provide the vehicle identification number (VIN) to confirm eligibility.
Point-of-Sale Credit: Starting in 2024, it is anticipated that these credits will be allowed at the point of sale, meaning buyers can apply the credit immediately instead of waiting until tax season. This will make it easier for buyers to benefit from the incentive upfront.
Non-Refundable Nature of Credits: Since both the new and used vehicle credits are non-refundable, they will reduce the amount of tax you owe but cannot result in a refund beyond your tax liability. If your tax liability is less than the amount of the credit, the remaining portion of the credit cannot be refunded or carried forward to future years.
Information up to 10/2024.
Sources:
IRS Clean Vehicle Credit Information.
Inflation Reduction Act EV Guidelines.
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