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What Electric Vehicles Qualify For Federal Tax Credits

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Harnessing the Power of Incentives: Tax Tips For Plug-In Electric Cars and Fuel-Cell Electric Vehicles. What Electric Vehicles Purchased in 2023 Qualify For Federal Tax Credits?

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Imagine cruising down a smooth highway. Not just fueled by clean energy, but with a stack of green bills flapping happily in your rearview mirror. That's the prospect offered by the 2023 federal tax credits for electric vehicles (EVs) – a turbo boost for your wallet and the planet. But navigating the twists and turns of these incentives can feel like tackling a mountain pass in a beat-down buggy. 

Don’t worry! This article is your roadmap to unlocking those tax savings, making your dream EV purchase environmentally responsible and financially rewarding. 

We'll ditch the confusing jargon and break down the credit system into bite-sized, easy-to-digest nuggets. You'll discover which fuel-cell electric and plug-in hybrid vehicles qualify, how to calculate your potential windfall, and why the origin of your car's assembly matters more than ever. Buckle up,  because the road to zero emissions and sweet tax breaks starts right here.

Electric Vehicles and Federal Tax Credits: What's the Deal?

The federal tax credit for electric vehicles is a lucrative incentive for potential EV owners. This 2023 tax credit aims to promote environmentally friendly travel by making electric and fuel-cell electric vehicles more accessible. It's a pivotal year for the EV market, as the tax credit encompasses various vehicles, including plug-in hybrids and those solely powered by electricity.

For vehicles purchased January 1st to April 17th, 2023:

  • The base credit was the "Transitional Qualified Plug-in Electric Drive Vehicle Credit". This was because it served as a bridge between the old EV credit system and the new system introduced by the Inflation Reduction Act (IRA).
  • The base credit amount is $2,500.
  • You get an additional $417 for a vehicle with at least 7 kilowatt hours of battery capacity.
  • Additionally, you get $417 for each kilowatt hour of battery capacity beyond 5 kilowatt hours.
  • The maximum credit you can receive is $7,500.

For vehicles purchased April 18th, 2023 and onward:

  • The $7,500 credit for new EVs is officially called the "Clean Vehicle Credit". This broader term encompasses electric vehicles and fuel-cell electric vehicles and reflects the IRA's focus on clean transportation.
  • The $4,000 credit for used EVs remains unofficially referred to as the "Used Clean Vehicle Credit" as it builds upon the existing used EV credit program but with updated provisions under the IRA.
  • The credit amount depends on the vehicle's MSRP, final assembly location, battery component or critical minerals sourcing, and your modified adjusted gross income (AGI).
  • You can claim up to $7,500 for new EVs and up to $4,000 (limited to 30% of the sale price) for used EVs.
  • However, income limits may apply for the full $7,500 new car credit.

For further consideration:

  • The credit is nonrefundable, meaning it can only reduce your tax liability to zero not give you a refund if it exceeds your tax bill.
  • You can claim the credit on your tax returns filed in 2024.
  • Starting in 2024, you can transfer the credit to the dealer at the point of purchase instead of claiming it on your tax return.

Do You Qualify for the Federal Tax Credit When Buying an EV?

To qualify for the federal tax credit, there are a few checkboxes to tick. The starters are purchasing a new EV in 2023, ensuring it has a plug-in electric drive motor, and verifying its final assembly in North America. Your eligibility will also depend on when the vehicle was placed in service and the specifics of the clean vehicle tax credit.

Qualifications for Electric Vehicle Tax Credits (2023):

January 1st – April 17th, 2023:

  • Vehicle Type: Must be a new all-electric or plug-in hybrid electric vehicle.
  • Battery Capacity: Minimum of 7 kilowatt-hours (kWh) battery capacity.
  • Maximum MSRP: No limits.
  • Location of Final Assembly: No restrictions.
  • Income Limits: No income limitations applied.

April 18th, 2023 and Onward:

  • Vehicle Type: Can be a new all-electric, plug-in hybrid electric, or fuel-cell electric vehicle.
  • Battery Capacity: No minimum requirement for new EVs, but used EVs require at least 7 kWh.
  • Maximum MSRP: Varies depending on vehicle type (lower for SUVs and trucks).
  • Location of Final Assembly: Must be assembled in North America for full credit, partial credit for foreign assembly.
  • Battery Components and Critical Minerals: Bonus credit available for vehicles using domestically sourced components and minerals.
  • Income Limits: Credit amount may be reduced for individuals with modified adjusted gross income (MAGI) exceeding $75,000 and couples with MAGI exceeding $150,000.

What Fuel-Cell Electric Cars and Plug-In Electric Vehicles Qualify for Federal Tax Credits?

Make Model
Audi e-tron GT
Audi e-tron S
Audi Q4 e-tron
Audi A3 e-tron
Audi Q5 PHEV
BMW 330e
BMW 530e
BMW i4
BMW iX
Chevrolet Bolt EV
Chevrolet Bolt EUV
Chrysler Pacifica Plug-In Hybrid
Ford F-150 Lightning
Ford Mustang Mach-E
Ford Escape PHEV
Ford Maverick Hybrid
Genesis GV60
Honda Clarity Electric
Hyundai Kona Electric
Jeep Wrangler 4xe
Kia Niro PHEV
Kia EV6
Lexus UX 300e
Mercedes-Benz EQC
Mercedes-Benz EQB
Mercedes-Benz C350e
Mitsubishi Outlander PHEV
Mini Cooper SE Countryman ALL4
Nissan Ariya
Nissan Leaf
Polestar 2
Porsche Taycan
Rivian R1S
Rivian R1T
Subaru Solterra
Tesla Model 3
Tesla Model S
Tesla Model X
Tesla Model Y
Toyota bZ4X
Volkswagen ID.4
Volvo C40 Recharge
Volvo XC40 Recharge

Understanding the Tax Credit for Different Types of EVs

The impact of the electric vehicle tax credit on qualifying vehicles depends on two crucial factors: purchase date and vehicle characteristics. For pre-April 2023 purchases, any new plug-in hybrid or electric vehicle with at least a 7-kilowatt-hour battery qualifies for a credit, with bonuses for larger batteries. Later purchases open the credit to used vehicles and fuel-cell cars but with limits on battery capacity and income levels. Vehicle type and size matter, too, with lower maximum MSRPs for SUVs and trucks and bonus credits for vehicles assembled in North America and using domestically sourced components. 

Buyers benefit from reduced purchase costs, increased demand for specific models, and potential manufacturer shifts toward domestic production. Claiming the credit varies: in 2023, it's a tax return deduction, but starting in 2024, you may transfer the credit directly to the dealer at purchase. Ultimately, the tax credit shapes buyer choices and incentivizes the adoption of electric vehicles, with its impact varying based on the specific car and timing of purchase.

Final Assembly in North America and Your Tax Credit

For electric vehicle purchases after April 17th, 2023, final assembly in North America plays a crucial role in determining tax credit eligibility. Vehicles assembled outside North America may qualify, but the credit amount halves. This incentivizes domestic production and supports jobs within the region. Choosing a North American-assembled model becomes a clear advantage for those aiming for the full $7,500 credit for new EVs, impacting buying decisions and potentially influencing manufacturer strategies. While foreign-assembled vehicles may qualify for a reduced credit, the financial incentive to choose domestic ones emerges, shaping the landscape of electric car purchases in the U.S.

How to Claim the Federal Tax Credit for Your EV Purchase

If you bought a qualifying plug-in electric vehicle in 2023, claim the tax incentive when filing your 2024 tax return. Remember, the "vehicle must" be in service before December 31st, 2023. Gather the VIN for your eligible plug-in electric drive motor vehicle and use Form 8936, titled "Qualified Plug-in Electric Drive Motor Vehicle Credit," to calculate and claim the credit. Note that the credit amount depends on your vehicle's purchase date and characteristics, along with any applicable income limits. This form will guide you through claiming your electric drive motor vehicle credit, ensuring you benefit from the full tax incentive available for your 2023 purchase.

Fuel-Cell Electric Vehicles: A Special Consideration for Tax Credits

Fuel-cell electric Vehicles (FCEVs) receive unique consideration for the 2023 electric vehicle tax credits, expanding your potential savings. While they share eligibility conditions with plug-in electric vehicles (PEVs) - like final assembly in North America and minimum battery capacity for used models - a key difference comes into play: manufacturers don't impact FCEV credit availability. Unlike their PEV counterparts, whose credit may decrease based on manufacturer sales volume, FCEVs retain full eligibility regardless of brand. This makes them a powerful option for maximizing your federal income tax savings in 2023.

Remember, the credit may vary depending on purchase date and income limitations. So, before revving up for an FCEV purchase, see federal tax credit resources to estimate your specific savings potential. While both PEVs and FCEVs offer exciting environmental benefits, under the 2023 tax landscape, FCEVs stand out as a special consideration for maximizing your federal income tax credit on clean transportation.

Your Income and Its Influence on Federal Tax Credit Eligibility

While income doesn't directly disqualify you from claiming the electric vehicle tax credit, it can influence how much credit you receive for qualifying electric vehicles purchased after April 18th, 2023:

  • Full credit: You get the full $7,500 credit for new EVs as long as your modified adjusted gross income (MAGI) stays below $75,000 for single filers and $150,000 for married filing jointly.
  • Reduced credit: If your MAGI falls between these thresholds and $150,000 for single filers and $300,000 for married filing jointly, you still receive a tax credit, but it's progressively reduced based on your income.
  • No credit: Once your MAGI is within the upper limits, you're no longer eligible for the full credit or the reduced credit for new EVs.

For used EVs, income limitations are even stricter:

  • Full credit: You get the full credit (up to $4,000 or 30% of the sale price) only if your MAGI is below $75,000 for single filers and $150,000 for married filing jointly.
  • No credit: Exceeding those income limits immediately makes you ineligible for any used EV credit.

The IRS's Role in the Federal EV Tax Credit Process

The IRS is the gatekeeper for the federal EV tax credit. They set the rules for the vehicle's eligibility, which includes a myriad of factors like the vehicle identification number, gross vehicle weight rating, and the taxpayer's adjusted gross income. Their website provides all the details for the clean vehicle credit, including the requirements for vehicles placed in service in a particular tax year.

What to Know About EV Tax Credits for Vehicles Purchased Before August 17, 2024

EVs purchased before August 17, 2024, have a different set of rules regarding the tax credit. Some vehicles may still qualify under the new clean vehicle credit by transferring their credit at the point of sale. However, checking the details of these transitional rules is key as they can affect the amount of the clean vehicle credit you're eligible to claim.

Looking Beyond 2023: The Federal Tax Credit's Journey

As we look beyond 2023, changes to the federal tax credit for electric vehicles are inevitable. Staying abreast of legislative adjustments is crucial for any prospective EV buyer. Energy credits, online tools, and new information from the IRS will be invaluable resources for keeping up-to-date.

Summary: Electrifying Your Tax Savings

- Federal tax credit offers up to $7,500 off the purchase of a new electric vehicle.
- Eligibility criteria include the vehicle's final assembly in North America and specific features of the electric drive motor.
- Various types of EVs, including plug-in electric vehicles and fuel-cell electric vehicles, are eligible for federal tax credits.
- Taxpayers' adjusted gross income may impact eligibility for the full tax credit.
- Claiming the tax credit involves filing IRS Form 8936 with your tax return.
- Vehicles purchased before August 17, 2024, are subject to transitional rules under the Inflation Reduction Act of 2022.

How can Taxfyle help?

The nuances of determining your eligibility for tax credits are plentiful, and they expand beyond just your vehicle. Are you making the most of your deductions? Why not ask an expert?

At Taxfyle, we connect individuals and small businesses with licensed, experienced CPAs or EAs in the US. We handle the hard part of finding the right tax professional by matching you with a Pro who has the right experience to meet your unique needs and will handle filing taxes for you.

Get started with Taxfyle today, and see how filing taxes can be simplified.

Legal Disclaimer

Tickmark, Inc. and its affiliates do not provide legal, tax or accounting advice. The information provided on this website does not, and is not intended to, constitute legal, tax or accounting advice or recommendations. All information prepared on this site is for informational purposes only, and should not be relied on for legal, tax or accounting advice. You should consult your own legal, tax or accounting advisors before engaging in any transaction. The content on this website is provided “as is;” no representations are made that the content is error-free.

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published

December 20, 2023

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Richard Laviña, CPA

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