With the recent passage of the Inflation Reduction Act of 2022, the electric vehicle credit has undergone some major changes. Although most of the changes take effect in this year, to qualify for the current credit, vehicles purchased after August 15, 2022, are required to meet the final assembly requirement of the new law.
If you’re shopping for an electric vehicle (EV) or plug-in hybrid electric vehicle (PHEV), it’s important to be aware of the changes to federal EV tax credits. Highlights include:
- Qualifying vehicles must be assembled in North America.
- Starting in March 2023, increasing percentages of battery minerals and components must be sourced from the U.S. or from one of its free trade partners.
- There are significant new eligibility limits on both the price of the vehicle and the income of the buyer.
- Used EVs sold by dealers will be eligible for a one-time tax credit.
- The manufacturer vehicle sales cap has gone away, meaning brands such as Chevrolet, Tesla and Toyota that reached the previous 200,000-unit limit can once again offer these incentives.
- Starting in 2024, a new mechanism will allow buyers to take the EV tax credit directly from the dealer at the point of sale rather than having to wait for the next tax season.
These measures may help to promote the production and sale of EVs, as well as strengthen EV supply chain. Let’s take a closer look at what you can expect.
The U.S. Department of Energy has prepared a list of Model Year 2022 and early Model Year 2023 vehicles that may meet the final assembly in North America requirement. Although the current law phasing out the credit once a manufacturer has produced 200,000 vehicles has been eliminated beginning in 2023, it still applies for vehicles sold in 2022. The U.S. Department of Energy list tags those that have reached the 200,000 limit. Visit the IRS site for a list of qualifying vehicles to see if a vehicle might still qualify for a reduced credit.
EVs Purchased and Delivered Between August 16, 2022, and December 31, 2022?
If you purchased your EV between August 16, 2022, and December 31, 2022, the rules for claiming the EV tax credit before the IRA became law, still apply, except that the final assembly requirement applies.
The New Law – The new law includes some new stringent requirements including that the critical minerals and other battery components used in the manufacture of a qualifying vehicle be from North America. Due to limited availability of some minerals this requirement is being phased in through 2029, giving manufacturers time to develop North American sources for these materials.
EV Tax Credit Income Limits
If you’re single, and your modified adjusted gross income is over $150,000, you do not qualify for the EV tax credit.
The EV tax credit income limit for married couples who are filing jointly is $300,00. If you file as head of household and make $225,000 or more, you also won’t be able to claim the EV tax credit.
New Vehicle Definition – Under the prior law a qualifying vehicle was required to have a battery with a minimum of 4 kilowatts-hours, after 2022 a qualifying vehicle’s battery must be a minimum of 7 kilowatts-hours.
Transfer of Credit to the Dealer – After 2022, the new law adds an interesting twist that allows a taxpayer to utilize the credit to reduce the vehicle’s cost. This is accomplished by the taxpayer, who, on or before the purchase date, can elect to transfer the clean vehicle credit to the dealer from whom the taxpayer is purchasing the vehicle in return for a reduction in purchase price equal to the credit amount.
Credit For Used Vehicles – The new law includes a credit for used clean vehicles that cost $25,000 or less that are purchased from a dealer. This credit is limited to the first time the vehicle is resold, and available only to taxpayers whose MAGI is no more than half that of the MAGI limit for the new clean vehicle credit. The credit amount is the lesser of $4,000 or 30% of the purchase price. However, other details of this credit need further guidance from the IRS. Watch for additional information in the future.
Vehicles that Qualify for the EV Tax Credit- The North American assembly requirements, and income limits and price caps mean that a segment of high-earning car buyers won’t be able to claim the credit. Also, several popular clean vehicles don’t qualify for the EV tax credit, which has caused some confusion. To help, the IRS has provided answers to frequently asked questions about the EV tax credit and which cars qualify. More vehicles will reportedly be added.
If you have or are in the market to purchase an EV car, there could be some beneficial tax credit you can take advantage of. If you should have further questions, please contact the tax advisors at Jeanine Hemingway, CPA.