In 2023, EVs accounted for 7.6% of the US vehicle market, according to Kelley Blue Book, up from 5.9% in 2022.
As electric vehicles (EVs) continue to grow in popularity, incentives like the Clean Vehicle Tax Credit are helping more people make the switch. Created under the Inflation Reduction Act, this $7,500 credit applies to EVs and fuel cell vehicles.
Here are some common questions about this tax credit:
Which vehicles qualify?
To get the full $7,500 credit, a vehicle must:
- Be a new plug-in electric or fuel cell vehicle.
- Have a minimum battery capacity of seven-kilowatt hours.
- If placed in service after April 18, 2023, the vehicle must meet mineral and battery component requirements. If it only meets one of these requirements, the buyer can still qualify for a $3,750 credit.
- Be assembly in North America with a gross weight under 14,000 pounds.
- Be purchased for personal use and driven primarily in the United States.
Does the cost of the vehicle impact eligibility?
Yes. The vehicle’s manufacturer suggested retail price (MSRP) cannot exceed:
- $80,000 for vans, SUVs and pickups
- $55,000 for all other vehicles
Does the buyer's income impact eligibility?
Yes. To qualify for this credit, your modified adjusted gross income (MAGI) must be
- $300,000 or less for married couples filing jointly
- $225,000 or less for heads of households
- $150,000 for other filers
How can I claim the credit?
You have two options for claiming the credit. First, when you prepare your tax return, use Form 8936 to determine your possible credit. Starting in 2024, you can also transfer the credit directly to an eligible dealer when you purchase a vehicle, which will lower the vehicle’s purchase price by the credit amount.
Keep in mind that if you choose not to transfer the credit, it’s “nonrefundable”. This means you won’t get back more than what you owe in taxes, and any unused credit cannot be applied to future tax years.
Does a used vehicle qualify for the tax credit?
Yes, but the credit is less than what you would receive for a new vehicle, and the income limits are lower. As of January 1, 2023, if you buy a qualified used EV or fuel cell vehicle from a licensed dealer for $25,000 or less, you may qualify for up to $4,000.
Your MAGI must not exceed $150,000 for married couples filing jointly, $112,500 for heads of households or $75,000 for other filers.
Do your homework before you buy
If you’re considering buying an EV, the tax credit is a great incentive. But before you buy, do your research.
Check to make sure the vehicle and your income meet the eligibility requirements, so you can receive the full tax credit. Reach out to your Smolin advisor to learn more.