Understanding the electric vehicles tax credit might seem overly complicated especially with some of the recent changes. That’s why here we’ll give you an easy explanation of the credit and how it changes based on when purchased.
If you purchased your EV on 2022 or before, the credit will be subject to a certain set of rules. After that, the Inflation Reduction Act of 2022 made changes to the credit and we’ll go over both scenarios.
In both cases, the electric vehicles tax credit is classified as a non-refundable credit for a maximum of $7,500. A credit reduces your tax liability dollar-for-dollar. This means that any tax liability you might have had is directly reduced by the amount of the credit. However, since it’s non-refundable, it can only reduce your liability to $0. You cannot get a tax refund using this credit -only a reduction of any tax you might owe to $0.
Individuals and their businesses can claim the credit, and the vehicle must be for your own use, not for resale. The EV must also be used primarily within the U.S. in order to qualify.
You cannot carryover any “unused portion” of the credit to future years.
EV's Purchased on 2022 or Before
For vehicles purchased on 2022 or before, certain conditions apply.
- Must weigh less than 14,000 lbs.
- Must have an external charging source
- Have a battery capacity of at least 5 kilowatt hours (kWh)
- Must be made by a manufacturer who hasn’t sold more than 200,000 electronic vehicles in the United States
If you purchased your EV before 2022 and did not claim the credit, you can file an amended return for that year to claim it.
The credit applies in the amount of $2,917 for an EV with a battery capacity of 5 kilowatt hours (kWh). From there, any additional kilowatts count as an additional $417 up to a maximum credit of $7,500.
Special Rule For Vehicles Purchased Between August 16 and December 31 2022: Final Assembly in North America
If you purchased between August 16th and December 31st of 2022, you must meet an additional requirement. Your vehicle must have underwent final assembly within North America.
To find out if your vehicle meets this requirement, click on this link from the Department of Energy’s website.
EV's Purchased On 2023 Or After
In addition for the general rules that apply in both scenarios (vehicle not for resale, use primarily within the U.S.) there are certain other limitations.
Your MAGI (modified adjusted gross income) may not exceed:
- $300,000 married filing jointly
- $225,000 head of household
- $150,000 for other filing status (single, married filing separately, etc.)
The part to be aware of if you can use the MAGI of the year you took delivery of the vehicle or the one before. If your MAGI if too high for any of those two years but qualifies the other one, you may use the latter.
Also to be mindful of if that the credit applies for the year you placed the vehicle in service. That means you might have purchased it during one year, but took delivery of it during the following year. The credit would apply for the year you took delivery (placed in service) not the year you purchased it.
Conditions For Vehicles Purchased on 2023 or After
Here’re the conditions for vehicles purchased (placed in service) on 2023 or after to qualify:
- Must weigh less than 14,000 lbs.
- Have a battery capacity of at least 7 kilowatt hours (kWh)
- Be made by a qualifying manufacturer (except if an FCV -fuel cell electric vehicle)
- Have underwent final assembly in North America
- Meet the critical mineral and battery component requirements if purchased after April 18th 2023
- The vehicle must be purchased “new”
- The seller reports the required information upon sale to the IRS -sellers should report your name and taxpayer identification number upon sale
- The manufacturer’s suggested retail price (MSRP) can’t exceed $80,000 for vans, SUVs, or pickups; it can’t exceed $55,000 for other types of vehicles
Amount of Credit for Vehicles Purchased on 2023 or After
The amount of the credit for vehicles purchased (placed in service) on 2023 or after is as follows:
- $2,500 base amount
- $417 for the minimum requirement of 7 kilowatt hour (kWh) battery
- $417 for every kWh above 5kWh
- Up to a limit of $7,500
That makes for a minimum credit of $3,751, since the minimum requirement is a vehicle with a 7kWh battery.
For Vehicles Placed in Service After April 18th 2023
All of the just mentioned credit considerations apply, except vehicles must meet the critical minerals and battery components requirement. Meeting and not meeting either one of the two has the following consequences on the credit:
- Up to $3750 of the credit will qualify if the critical minerals requirement is met.
- Up to $3750 of the credit will qualify if the battery components requirement is met.
- The full amount of $7,500 of the credit will qualify if both the critical minerals and the battery components requirements are met.
How to Claim the EV Credit
You must file IRS Form 8936, “Qualified Plug-In Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-In Electric Vehicles) with your tax return. See the screenshot below for an idea of what the form includes.
For expert help in claiming this credit, making an amended return if you missing claiming this credit in a prior year, or general tax services, contact us by clicking here.