EV Tax Credit: 2022 & 2023

In the event you’re reading this piece, you’ve probably already heard concerning the Federal EV Tax Credit. Nevertheless, with tax season coming up fast, did you realize that the 2022 credit isn’t going to be similar to the one you would possibly get for those who buy an EV or plug-in hybrid after January 1st, 2023? Have you ever heard concerning the manufacturer’s sales caps that affect which EVs qualify? Did you realize that there may soon be a Tax Credit for used EVs?

Maintaining with the EV Tax Credit situation may be confusing, so here’s what we all know concerning the EV Tax Credit immediately and what it’ll seem like after the start of the brand new yr.

Tax Credit 101: What Is the EV Tax Credit, and How Do I Get It?

Before we start: this text is for informational purposes only, and shouldn’t be intended to supply, and shouldn’t be relied on for, tax, legal or accounting advice. We’re experts in EVs, not tax law. Please seek the advice of your individual accounting, tax, and legal advisors before engaging in any transaction.

What Is the Federal EV Tax Credit?

The Federal EV Tax Credit, now officially generally known as the Clean Vehicle Credit, was implemented to assist spur the acquisition and production of EVs within the US to assist reduce emissions, slow global warming, and so forth. The credit was previously generally known as the Plug-In Electric Drive Motor Vehicle Credit.

As a refresher, a federal tax credit is an amount that reduces the quantity of tax money that you just owe to the IRS while you file your taxes for the yr. Practically speaking, a tax credit can effectively reduce the value of an EV (provided you’re able to owe federal tax money, which most individuals are).

The non-refundable Federal EV tax credit is barely subtracted from what you already owe. For instance, if the credit is price $7,500 and also you owe $20,000 in taxes, then you definitely would receive the complete value of the credit (reducing your taxes owed to $13,500). In the event you owe lower than the credit, resembling $3,000, then the credit would only be price $3,000 (reducing your taxes owed to 0). You won’t get a refund check for the remaining $4,500 in possible tax credit.

How Do I Claim the EV Tax Credit?

In an effort to claim an EV tax credit, buyers have to purchase a qualifying EV (we’ll get to which EV makes, models, and years qualify later in this text).  A buyer might want to be certain the dealer or manufacturer gives them a duplicate of the EV’s letter of certification (an official document from the IRS) which describes the make, model, and tax yr that might qualify their EV for a Clean Vehicle Credit. This letter provides the buyer with proof of their vehicle’s eligibility for the credit when it’s time to file their federal taxes.

Next, buyers have to file the suitable tax form (Form 8936) to say the EV tax credit in the course of the yr the EV is put into service (this may be a very important distinction for those who sign a contract for purchase in a special yr than actually receiving delivery of your EV). Your local tax professionals can aid you determine easy methods to file properly to get the very best credit value possible. In the event you file your taxes yourself, make sure you take a look at the IRS website for a full explanation of Form 8936.

We’ve seen some discussion that claims dealerships and manufacturers that qualify may have the opportunity to offer you your tax credit up front by transferring the credit to themselves and providing you with the identical amount as a reduction in your EV purchase (on the point-of-sale). This might essentially be a rebate for consumers —and yes, there’s definitely debate about whether or not this may help keep EV prices inexpensive. Nevertheless, the point-of-sale approach to receiving your credit value shouldn’t be currently a part of 2022-2023 tax law. On the earliest, this method could also be available in 2024.

The Federal EV Tax Credit: 2022 vs 2023

A couple of major differences exist when it comes to the Tax Credit law between 2022 and 2023. The changes involve manufacturer’s sales caps, assembly and sourcing restrictions, and income brackets for eligibility. Let’s take a take a look at the 2022 EV Tax Credit first:

The 2022 EV Tax Credit

***NOTE: why are we including 2022 info in 2023, you would possibly ask? Well, for those who purchased an EV in 2022, THAT is the credit which will apply to you (example: Rivian owners who purchased in 2022). In the event you’re in search of 2023 info, jump ahead to that section below!

Because of previous laws, the Federal EV Tax Credit in 2022 offers taxpayers as much as $7,500 in non-refundable credit on their 2022 taxes for purchasing a latest EV. The one disqualifications from the credit were for electric or plug-in hybrid vehicles with a battery smaller than 7kWh or vehicle models which have already met the 200,000 units sold manufacturers sales cap (and have phased out of the credit).

Because of amendments to tax law provided by the Inflation Reduction act, qualifying EVs under the previous tax law purchased after August 16, 2022 and before January 1st, 2023, also have to be assembled in North America to qualify for the Tax Credit in any respect. This eliminates a variety of EVs, dropping the qualifiers right down to only 18 vehicles on the time of writing:

  • 2022 Audi Q5
  • 2022 BMW 330e
  • 2022 BMW X5 xDrive45e (PHEV)
  • 2022 Chrysler Pacifica PHEV
  • 2022 Ford E-Transit
  • 2022 Ford Escape PHEV
  • 2022 Ford F-150 Lightning
  • 2022 Ford Mustang MACH E
  • 2022 Jeep Grand Cherokee 4xe
  • 2022 Jeep Wrangler 4xe
  • 2022 Lincoln Aviator PHEV
  • 2022 Lincoln Corsair PHEV
  • 2022 Lucid Air
  • 2022 Nissan Leaf
  • 2022 Rivian EDV
  • 2022 Rivian R1S
  • 2022 Rivian R1T
  • 2022 Volvo S60 Recharge
  • 2023 BMW 330e
  • 2023 BMW X5 xDrive45e (PHEV)
  • 2023 Jeep Grand Cherokee 4xe
  • 2023 Jeep Wrangler 4xe
  • 2023 Lincoln Aviator PHEV
  • 2023 Mercedes EQS SUV
  • 2023 Nissan Leaf

While the reduction in qualifying vehicles made waiting to buy an EV until the following tax yr seem attractive (the Tesla Model 3 is now eligible for the credit in 2023), it’s essential to notice that there are just a few major changes to actual taxpayer eligibility for the credit next yr. Before January 1st, there was no income threshold or vehicle price requirement for claiming the Clean Vehicle Credit, but for the 2023 tax yr, this example will change.

Let’s take a take a look at the present yr’s tax credit requirements:

The 2023 EV Tax Credit

The IRS has published a listing of vehicles which qualify for the credit, which we’ve updated below. Nevertheless, there is concept that this is likely to be amended in the long run. For instance, Tesla Model Y 5-seaters have a low limit of $55k to qualify, meaning the IRS has classified the Model Y as a automotive as a substitute of an SUV. It is a hotly debated distinction which may be revised within the near future as they might release clarification in March 2023 on this point and other specifics.

The brand new Clean Vehicle Credit is in effect after January 1st, 2023, and extends to December of 2032. This credit gives the identical non-refundable credit amount as before ($7,500), but there are several changes regarding which latest EVs (Battery Electric Vehicles, or BEVs) and PHEVs (Plug-In Hybrid Electric Vehicles) qualify.

One good change is that the manufacturer’s sales cap of 200,000 electric vehicles might be eliminated, potentially giving some tax relief to those trying to buy from Tesla and GM. Nevertheless, other changes exclude several vehicles from each of those manufacturers due to their selling price.

The upcoming EV tax credit only applies to latest electric cars with an MSRP of $55,000 or less, and zero-emissions electric SUVs, trucks, or vans with MSRPs of $80,000 or less. Moreover, there are latest requirements regarding battery components and important minerals that may qualify or disqualify vehicles even in the event that they are assembled in North America and are under the value threshold, and these are available two parts:

  1. Critical Minerals: The law states that $3,750 of the tax credit requires “the worth of the battery’s critical minerals which can be extracted or processed in the US or a U.S. free-trade agreement partner or recycled in North America” in 2023 to be 40% (and the share goes as much as 80% by 2027)
  2. Battery Components: In 2023, at the very least 50% of the battery’s components have to be manufactured or assembled in North America to qualify an EV for the following $3,750 of the Clean Vehicle credit.

There are also clauses within the law that include materials from Free Trade agreement partners, making eligibility requirements for every vehicle much more complicated similtaneously making higher allowances for source materials. For more information on the precise terms of the brand new Clean Vehicle Credit materials requirements, take a look at the Department of Energy’s EV Tax Credit explanation page.

When it comes to qualifying Teslas under the brand new law, the Tesla Model 3 options under $55,000 (after Tesla’s January 12, 2023 price change, this includes all Model 3 variants)—and the Tesla Model Y (each the 5 and seven seat Long Range and Performance variants)—qualify for the brand new credit. That’s something to look ahead to, especially since Tesla-manufactured vehicles haven’t qualified for a credit in just a few years. If the Cybertruck makes its debut mid-2023 as currently projected, it may qualify for the credit.

In accordance with the newest IRS data, listed below are the manufacturers and models that qualify for the Clean Vehicle Credit, including their MSRP price limit:

  • 2023 Audi Q5 TFSI e Quattro (PHEV) – $80,000
  • 2021, 2022, 2023 BMW 330e – $55,000
  • 2021, 2022, 2023 BMW X5 xDrive45e – $80,000
  • 2022, 2023 Ford Escape Plug-In Hybrid – $80,000
  • 2022, 2023 Ford E-Transit – $80,000
  • 2022, 2023 Ford F-150 Lightning – $80,000
  • 2022, 2023 Ford Mustang Mach-E – $55,000
  • 2022, 2023 Lincoln Aviator Grand Touring – $80,000
  • 2022, 2023 Lincoln Corsair Grand Touring – $55,000
  • 2022, 2023 Chevrolet Bolt – $55,000
  • 2022, 2023 Chevrolet Bolt EUV – $55,000
  • 2022, 2023 Cadillac Lyriq – $55,000
  • 2021, 2022, 2023 Nissan Leaf S – $55,000
  • 2021, 2022 Nissan Leaf S Plus – $55,000
  • 2021, 2022 NIssan Leaf SL Plus – $55,000
  • 2021, 2022 Nissan Leaf SV – $55,000
  • 2021, 2022, 2023 Nissan Leaf SV Plus – $55,000
  • 2022, 2023 Rivian R1S – $80,000
  • 2022, 2023 Rivian R1T – $80,000
  • 2022, 2023 Chrysler Pacifica PHEV – $80,000
  • 2022, 2023 Jeep Wrangler 4xe – $80,000
  • 2022, 2023 Jeep Grand Cherokee 4xe – $80,000
  • 2022, 2023 Tesla Model 3 Rear Wheel Drive – $55,000
  • 2022, 2023 Tesla Model 3 Long Range – $55,000
  • 2022, 2023 Tesla Model Y All-Wheel Drive – 7 seat variant (3-rows) – $80,000
  • 2022, 2023 Tesla Model Y Long Range – 7 seat variant (3-rows) – $80,000
  • 2022, 2023 Tesla Model Y Performance – 7 seat variant (3-rows) – $80,000
  • 2022, 2023 Tesla Model Y All-Wheel Drive – 5 seat variant (2-rows) – $55,000
  • 2022, 2023 Tesla Model Y Long Range – 5 seat variant (2-rows) – $55,000
  • 2022, 2023 Tesla Model Y Performance – 5 seat variant (2-rows) – $55,000
  • 2023 Volkswagen ID.4 – $55,000
  • 2023 Volkswagen ID.4 Pro – $55,000
  • 2023 Volkswagen ID.4 Pro S – $55,000
  • 2023 Volkswagen ID.4 S – $55,000
  • 2023 Volkswagen ID.4 AWD Pro – $80,000
  • 2023 Volkswagen ID.4 AWD Pro S – $80,000
  • 2022 Volvo S60 (PHEV) – $55,000
  • 2022 Volvo S60 Prolonged Range – $55,000
  • 2023 Volvo S60 T8 Recharge (Prolonged Range) – $55,000

PHEVs may also still qualify for the credit in the event that they meet the identical requirements we’ve already covered and have a battery of over 7kWh.

Yet another change to the 2023 law from earlier 2022 tax credit requirements is that individuals are not any longer eligible to say the Clean Vehicle Credit in the event that they are filing singly with over $150,000 income per yr, jointly with a combined income of $300,000 per yr, or as a head of household at $225,000 per yr. This can inevitably exclude quite just a few latest EV buyers from profiting from the credit.

Before we move on to the FAQ, we’d prefer to mention yet another addition to the EV tax credit that might be available within the near future:

Coming in 2023: The Used EV Tax Credit

For the recently legislated Used EV Tax Credit (officially generally known as the Credit for Previously-Owned Clean Vehicles), there’s excellent news and bad news:

The excellent news is that the Used EV Tax Credit finally available in 2023! We’re excited that lawmakers are finally seeing the worth in encouraging folks to purchase a used EV. The non-refundable credit goes as much as $4,000 or 30% of the used EV’s sales price (whichever is lower).

Unfortunately, the bad news is that the used electric vehicle credit has some pretty stiff restrictions on who can profit from it and which used EVs qualify:

  • Those with a Modified Adjusted Gross Income (MAGI) of over $75,000 individually, $150,000 jointly, or $112,500 as head of household are not eligible to say the used EV credit
  • Used EVs have to be purchased 2 years past their model yr
  • The sales price of the used EV must not exceed $25,000
  • The vehicle may only have had one previous owner and only qualifies for the credit once
  • Each individual may only claim one used EV credit in a 3 yr period
  • The sale must happen through a qualified dealer

As we understand it, the present used EV Tax Credit law makes no provision for personal sales of used EVs. We’ll keep you updated if this example changes.

Additionally it is possible that EVs eligible for the Credit for Previously Owned Clean Vehicles still need to fulfill the identical final assembly requirements as those that might qualify for the credit when latest (but could also be exempt from the Critical Mineral and Battery Component restrictions). Nevertheless, most commentators on the used EV Tax credit don’t appear to think this might be the case.

We don’t have an exhaustive list of qualifying used EVs, but based on the extremely low price cap of $25,000, you’re likely the next vehicles:

  • BMW i3
  • Chevy Bolt
  • Chevy Spark
  • FIAT 500e EV
  • Ford Focus Electric
  • Ford Transit Connect Electric Cargo Van XLT
  • Hyundai Kona Electric
  • Hyundai Nexo
  • Kia Nero Electric
  • Kia Soul Electric
  • Mercedes-Benz B-Class Electric Drive
  • Nissan Leaf
  • Smart fourtwo EV
  • Tesla Model S (older 2012/2013 vehicles possibly under $25k within the used market)
  • Toyota Mirai
  • Toyota RAV 4 EV
  • VW e-Golf EV

In the event you’re trying to find used EVs which will qualify for the tax credit, you possibly can take a look at our listings page and filter by price and seller type (dealer).

EV Tax Credit FAQ

How do EV tax credits work?

An EV tax credit is an amount you can claim to cut back your tax burden. In the event you purchase a qualifying vehicle, you’d use IRS Form 8936 to determine your credit amount.

How do I qualify for the EV tax credit?

As a taxpayer, you possibly can qualify for the EV tax credit by:

  • Purchasing an eligible latest EV
  • After January 1st, 2023, having a Modified Adjusted Gross Income (MAGI) of under $150,000 when filing individually, $300,000 filing jointly, or $225,000 filing as head of household
  • After January 1st, 2023, purchasing an eligible used EV, and having a MAGI at or under 75,000 individually, 150,000 jointly, or 112,500 as head of household

Can I claim my EV tax credit?

Yes, for those who’ve purchased an eligible EV, you possibly can claim your EV tax credit in the identical calendar yr that you just put the EV into service.

After January 1st, 2023, you might also have the opportunity to pass your credit on to a professional dealership at the purpose of sale, effectively allowing you to make use of your credit like a rebate to cut back the up-front cost of an eligible latest EV.

When will the EV tax credit be available?

The EV tax credit is already available for the 2022 tax yr, but conditions for eligibility have modified after January 1st, 2023. For more details, see the complete discussion within the section “The Federal EV Tax Credit: 2022 vs 2023” above.

How do I file for the EV tax credit?

You may file for the EV Tax credit by filling out IRS Form 8936. Please seek the advice of your local tax skilled for details.

Is the EV tax credit refundable?

No, the EV Tax Credit is non-refundable.

Are there credits for EV chargers?

Yes! While the previous federal credit expired in 2021, The Inflation Reduction Act reinstated it. For more information on the EV charger Credit, please see the IRS.gov website.

What number of EV tax credits are you able to claim per yr?

You may claim one Clean Vehicle Credit (for brand new EVs) per person per yr. For qualifying pre-owned (used) EVs, you possibly can only claim a credit once every three years.

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