If you have an electric vehicle, the information in this article will be invaluable! The Inflation Reduction Act (IRA) of 2022 significantly revamped the federal electric vehicle (EV) tax credit, making it more accessible to some car buyers while excluding others. To maximize this valuable tax break, you’ll need to ensure careful tax preparation.
In this guide, our Lewis.cpa team will navigate the complexities of the new EV tax credit, clarifying how it works, who qualifies, and what you need to know to claim it. As always, we’re here to help answer your questions and ensure you’re informed on all things taxes.
What Is the Electric Vehicle Tax Credit?
The electric vehicle tax credit is a federal tax credit officially known as the Clean Vehicle Credit. It offers significant tax breaks for purchasing new and, in some cases, used electric vehicles. The amount of the federal EV tax credit depends on several factors. Don’t be fooled, however, This isn't just a simple EV credit; the federal tax credits have stipulations and requirements.
It's important to distinguish this clean vehicle credit from other types of tax breaks related to fuel efficiency or vehicle purchases. This credit is tied to the vehicle purchase itself, reducing your tax liability upon filing your federal income tax return.
While some cars qualify, others may qualify for only a portion of the credit. Electric vehicle tax credits are complex and require a deep vehicle specifications analysis.
How Does the EV Tax Credit Work & Who Qualifies for It?
The Clean Vehicle Credit is up to $7,500 for new EVs, but several factors significantly impact the final credit amount. For used vehicles, the maximum credit is $4,000, with additional requirements for age and purchase price. For new vehicles, the credit is based on a combination of the following factors.
It’s important to note that claiming the Clean Vehicle Credit involves navigating different income limits based on whether you're purchasing a new or used vehicle and your filing status.
Vehicle Type
The vehicle must be a new electric vehicle (EV), a plug-in hybrid vehicle (PHEV), or a fuel cell vehicle. Hydrogen fuel cell vehicles are eligible. Plug-in hybrid vehicles and plug-in hybrid electric vehicles also qualify.
Final Assembly Location
The vehicle must be final assembly in North America. This stipulation is enforced through the vehicle identification number (VIN). Battery component requirements and battery and sourcing requirements may also impact eligibility.
Manufacturer's Suggested Retail Price (MSRP)
There is a price cap on the retail price and sales price of the vehicle set at $55,000 for new cars and $80,000 for SUVs and trucks. Excluding destination fees, this maximum price of EV to get credit limits the pool of eligible vehicles.
Modified Adjusted Gross Income (MAGI)
Income limits apply but they differ depending on your filing status. Income caps also apply. For married couples filing jointly, the cap is $300,000. For heads of household, the cap is $225,000 while the cap for single filers is $150,000. These income limits ensure that the credit benefits those most in need of help with purchasing new electric vehicles.
The EV tax credit income limit prevents those at the highest income levels from claiming the full credit. If your adjusted gross income exceeds these thresholds, the credit amount may be less than the full amount. Your modified adjusted gross income will determine your eligibility for the full credit amount.
Battery Component Requirements
The IRA has battery component requirements, and a certain percentage of the vehicle’s battery components must be sourced from North America. This is yet another element that further restricts the eligible vehicles from claiming the full credit.
How to Claim the Clean Vehicle Credit
Here's a list of steps you can follow to claim your clean vehicle credit:
- Buy a qualifying new electric vehicle: It must meet specific requirements regarding assembly location, battery component sourcing, MSRP, and type (BEV or FCV). Plug-in hybrids may not fully qualify.
- Determine the credit amount: This is calculated based on the vehicle's battery capacity, type, and other factors, up to a maximum amount.
- Gather necessary documentation: This includes proof of purchase, the vehicle's VIN, and any documentation needed to demonstrate the vehicle's eligibility.
- File Form 8936: Use this IRS form to claim the credit when filing your federal income tax return.
- Receive the credit: The credit reduces your tax liability which can potentially result in a refund.
Important: The requirements and calculations are complex and subject to change. We encourage you to consult your accountant to learn more about your case.
Potential Changes and Considerations for Your EV Tax Credit
Because of the requirements around the final assembly location, eligible electric vehicles may be limited.
Here are some important factors to consider in your EV tax credit:
- Taxable income will affect the final amount of your tax credit.
- Income limits will decrease the credit amount if your income surpasses the threshold.
- Battery capacity will determine the credit amount.
- There is an EV tax credit income limit.
- Free trade agreement implications may impact eligibility.
- You cannot transfer the credit.
We understand there are many parts and factors to consider. If you feel overwhelmed, don’t stress. Our team at Lewis CPA is always ready to help you feel confident about your tax credit possibilities! We stay up-to-date on all the latest changes from the IRS and can help you determine if your vehicle qualifies, what paperwork you need, and how to maximize your tax bill.
Lewis CPA Can Help You Maximize Your EV Tax Credit!
The new EV tax credit offers significant savings but the eligibility requirements are undoubtedly complex. Rather than going through this alone, why not rely on our team? At Lewis CPA, we are committed to helping our clients navigate the complexities of this new tax credit. Our team of experienced tax professionals can ensure that you claim every dollar of tax benefits for which you are eligible.
From federal EV tax credits to used electric vehicles, we can guide you through the entire process, ensuring you don't miss any of the available tax advantages. Contact us today to schedule a consultation and learn how we can help you make the most of the electric vehicle tax credit.
