The Clean Vehicle Credit, brought to you by the Inflation Reduction Act of 2022 (IRA ’22), is the successor to the New Qualified Plug-in Electric Drive Motor Vehicle Credit.  The credit generally applies to vehicles having at least 4 wheels that are placed in service from 1/1/2023 – 12/31/2032. This post is broken down into the following sections:

• Credits for New Clean Vehicles Purchased in 2023 or After
• Credits for New Plug-in EVs Purchased before 2023
  
• Used Clean Vehicle Credit
• Commercial Clean Vehicle Credit

CREDITS FOR NEW CLEAN VEHICLES PURCHASED IN 2023 OR AFTER

If you buy a new plug-in electric vehicle (EV) or fuel cell vehicle (FCV) in 2023 or after, you may qualify for a clean vehicle tax credit.

Who Qualifies

You may qualify for a credit up to $7,500 under IRC §30D if you buy a new, qualified plug-in EV or fuel cell electric vehicle (FCV). The Inflation Reduction Act of 2022 changed the rules for this credit for vehicles purchased from 2023 to 2032.

The credit is available to individuals and their businesses.

To qualify, you must:

• Buy it for your own use, not for resale
• Use it primarily in the U.S.

In addition, your modified adjusted gross income (AGI) may not exceed:

• $300,000 for married couples filing jointly
• $225,000 for heads of households
• $150,000 for all other filers

You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your modified AGI is below the threshold in 1 of the two years, you can claim the credit.

The credit is nonrefundable, so you can’t get back more on the credit than you owe in taxes. You can’t apply any excess credit to future tax years.

Qualified Vehicles

To qualify, a vehicle must:

• Have a battery capacity of at least 7 kilowatt hours
• Have a gross vehicle weight rating of less than 14,000 pounds
• Be made by a qualified manufacturer. See the IRS index of qualified manufacturers and vehicles.
  • FCVs do not need to be made by a qualified manufacturer to be eligible. See Rev. Proc. 2022-42 for more detailed guidance.
• Undergo final assembly in North America

The sale qualifies only if:

• You buy the vehicle new
• The seller reports required information to you at the time of sale and to the IRS.
  • Sellers are required to report your name and taxpayer identification number to the IRS for you to be eligible to claim the credit.

In addition, the vehicle’s manufacturer suggested retail price (MSRP) can’t exceed:

• $80,000 for vans, sport utility vehicles and pickup trucks
• $55,000 for other vehicles

MSRP is the retail price of the automobile suggested by the manufacturer, including options, accessories and trim but excluding destination fees. It isn’t necessarily the price you pay.

To confirm whether a vehicle is a van, sport utility vehicle, pickup truck or other, see the IRS qualified vehicles and manufacturers.

You can find your vehicle’s weight, battery capacity, final assembly location (listed as “final assembly point”) and VIN on the vehicle’s window sticker.

To check online if a specific vehicle meets the requirements for final assembly location, go to the Department of Energy’s page on Electric Vehicles with Final Assembly in North America and use the VIN Decoder tool under “Specific Assembly Location Based on VIN.”

How to Claim the Credit

To claim the credit, file Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles) with your tax return. You will need to provide your vehicle’s VIN.

CREDITS FOR NEW PLUG-IN EVs PURCHASED BEFORE 2023

If you bought a new, qualified plug-in electric vehicle (EV) in 2022 or before, you may be eligible for a clean vehicle tax credit up to $7,500 under IRC §30D.

The credit equals:

• $2,917 for a vehicle with a battery capacity of at least 5 kilowatt hours (kWh)
• Plus $417 for each kWh of capacity over 5 kWh

The maximum credit is $7,500. It is nonrefundable, so you can’t get back more on the credit than you owe in taxes. You can’t apply any excess credit to future tax years.

Who Qualifies

You may qualify for a credit up to $7,500 for buying a qualified new car or light truck. The credit is available to individuals and businesses.

To qualify, you must buy the vehicle: 

• For your own use, not for resale 
• For use primarily in the U.S. 

Qualified Vehicles

To qualify, a vehicle must:

• Have an external charging source
• Have a gross vehicle weight rating of less than 14,000 pounds
• Be made by a manufacturer that hasn’t sold more than 200,000 EVs in the U.S. 

You can find your vehicle’s weight on the vehicle’s window sticker.

Vehicles Purchased After August 16, 2022: New Final Assembly Requirement

If you buy a qualified electric vehicle between August 17, 2022 and December 31, 2022, the same rules apply, plus the vehicle must also undergo final assembly in North America.

To see if your model meets the assembly requirements, check the Department of Energy’s page on Electric Vehicles with Final Assembly in North America. On that page you can:

• Confirm the assembly location for your specific vehicle using the VIN Decoder tool under “Specific Assembly Location Based on VIN.”
• Check a list of qualifying Model Year 2022 and early Model Year 2023 electric vehicles under “For Vehicles Purchased before January 1, 2023.”

Because some models are built in multiple locations, you should check both criteria for any specific vehicle.

Purchase date vs. delivery date

If you entered a written binding contract to buy a vehicle before August 16, 2022, but took possession on or after August 16, 2022, and before January 1, 2023, you may claim the credit based on the prior rules and disregard the assembly requirement.

If you purchased a vehicle between August 16, 2022 and December 31, 2022 but don’t take delivery of the vehicle until 2023, see “Credit for New Clean Vehicles Purchased in 2023 or After” above. 

How to Claim the Credit

To claim the credit for a vehicle you took possession of in 2022, file Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles) with your 2022 tax return. You will need to provide your vehicle’s VIN.

For Vehicles Purchased Before 2022

If you missed claiming a credit for an electric vehicle purchased before 2022, you may be able to claim it by filing an amended return for the tax year when you took possession of the vehicle.

The credit for qualified 2-wheeled plug-in electric vehicles expired in 2022. If you bought a 2-wheeled vehicle in 2021, but placed it in service during 2022, you may still be able to claim the credit for 2022. If you bought it after 2021, you can’t claim the credit.

See Instructions for Form 8936 (01/2022).

USED CLEAN VEHICLE CREDIT

Beginning January 1, 2023, if you buy a qualified used electric vehicle (EV) or fuel cell vehicle (FCV) from a licensed dealer for $25,000 or less, you may be eligible for a used clean vehicle tax credit (also referred to as a previously owned clean vehicle credit). The credit equals 30% percent of the sale price up to a maximum credit of $4,000.

The credit is nonrefundable, so you can’t get back more on the credit than you owe in taxes. You can’t apply any excess credit to future tax years.

Purchases made before 2023 don’t qualify.

Who Qualifies

You may qualify for a credit for buying a previously owned, qualified plug-in electric vehicle (EV) or fuel cell vehicle (FCV), including cars and light trucks, under IRC §25E.

To qualify, you must: 

• Be an individual who bought the vehicle for use and not for resale
• Not be the original owner
• Not be claimed as a dependent on another person’s tax return
• Not have claimed another used clean vehicle credit in the 3 years before the purchase date

In addition, your modified adjusted gross income (AGI) may not exceed:

• $150,000 for married filing jointly or a surviving spouse
• $112,500 for heads of households
• $75,000 for all other filers

You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less.  If your income is below the threshold for 1 of the two years, you can claim the credit.

Qualified Vehicles and Sales

To qualify, a vehicle must meet all of these requirements:

• Have a sale price of $25,000 or less
• Have a model year at least 2 years earlier than the calendar year when you buy it. For example, a vehicle purchased in 2023 would need a model year of 2021 or older.
• Not have already been transferred after August 16, 2022, to a qualified buyer.
• Have a gross vehicle weight rating of less than 14,000 pounds
• Be an eligible FCV or plug-in EV with a battery capacity of least 7 kilowatt hours
• Be for use primarily in the United States

Find a list of qualified vehicles here.

The sale qualifies only if:

• You buy the vehicle from a dealer
• For qualified used EVs, the dealer reports required information to you at the time of sale and to the IRS.

A dealer is a person licensed to sell motor vehicles in a state, the District of Columbia, the Commonwealth of Puerto Rico, any other territory or possession of the United States, an Indian tribal government, or any Alaska Native Corporation.

Required information includes:

• Dealer’s name and taxpayer ID number
• Buyer’s name and taxpayer ID number
• Sale date and sale price
• Maximum credit allowable under IRC §25E
• Vehicle identification number (VIN), unless the vehicle is not assigned one
• Battery capacity

How to Claim the Used Clean Vehicle Credit

Complete Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles and New Clean Vehicles), and file it with your tax return for the year you took possession of the vehicle to claim the used clean vehicle credit. You will need to include the vehicle identification number (VIN) on the form.

COMMERCIAL CLEAN VEHICLE CREDIT

Businesses and tax-exempt organizations that buy a qualified commercial clean vehicle may qualify for a clean vehicle tax credit of up to $40,000 under IRC §45W.  The credit equals the lesser of:

• 15% of your basis in the vehicle (30% if the vehicle is not powered by gas or diesel)
• The incremental cost of the vehicle

The maximum credit is $7,500 for qualified vehicles with gross vehicle weight ratings (GVWRs) of under 14,000 pounds and $40,000 for all other vehicles.

Who Qualifies

Businesses and tax-exempt organizations qualify for the credit. 

There is no limit on the number of credits your business can claim. For businesses, the credits are nonrefundable, so you can’t get back more on the credit than you owe in taxes. A IRC §45W credit can be carried over as a general business credit.

Vehicles That Qualify

To qualify, a vehicle must be subject to a depreciation allowance, with an exception for vehicles placed in service by a tax-exempt organization and not subject to a lease.

The vehicle must also: 

• Be made by a qualified manufacturer as defined in IRC 30D(d)(1)(C) 
• Be for use in your business, not for resale
• Be for use primarily in the United States
• Not have been allowed a credit under IRC §30D or §45W

In addition, the vehicle must either be:

• Treated as a motor vehicle for purposes of title II of the Clean Air Act and manufactured primarily for use on public roads (not including a vehicle operated exclusively on a rail or rails); or
• Mobile machinery as defined in IRC 4053(8) (including vehicles that are not designed to perform a function of transporting a load over a public highway)

The vehicle or machinery must also either be:

• A plug-in electric vehicle that draws significant propulsion from an electric motor with a battery capacity of at least:
  • 7 kilowatt hours if the gross vehicle weight rating (GVWR) is under 14,000 pounds
  • 15 kilowatt hours if the GVWR is 14,000 pounds or more; or
• A fuel cell motor vehicle that satisfies the requirements of IRC 30B(b)(3)(A) and (B).

How to Claim the Credit

As of the time of this writing, the IRS is finalizing a form for you to claim the credit.

You will need to provide your vehicle’s VIN along with the amount of the credit.

The depreciable basis of the vehicle is reduced by the amount of the commercial clean vehicle credit you receive.

(This is Blog Post #1334)