Considering a new electric or fuel cell vehicle in 2023? You might be in line for a significant tax break. The Clean Vehicle Tax Credit, updated by the Inflation Reduction Act of 2022, offers eligible taxpayers up to $7,500 for qualifying new plug-in electric vehicles (EVs) and fuel cell vehicles (FCVs). This guide breaks down everything you need to know to see if your Car 2023 purchase can save you money.
Who is Eligible for the 2023 Clean Vehicle Tax Credit?
The Clean Vehicle Tax Credit isn’t just for anyone buying a new EV. Both individuals and businesses can take advantage of this credit, but there are specific requirements to meet.
To qualify, you as the buyer must:
- Purchase the vehicle for your own use, not for resale.
- Primarily use the vehicle within the United States.
Furthermore, your income level plays a crucial role in eligibility. Your modified Adjusted Gross Income (AGI) must not exceed certain thresholds:
- $300,000 for married couples filing jointly or surviving spouses.
- $225,000 for heads of households.
- $150,000 for all other filing statuses.
The IRS allows you to use your modified AGI from either the year you take delivery of the vehicle or the preceding year, whichever is lower. Meeting the income threshold in just one of these two years is sufficient to qualify for the credit. It’s important to note that this tax credit is nonrefundable unless you choose to transfer it at the point of sale, meaning the credit amount cannot exceed your tax liability for the year, and any unused portion cannot be carried forward to future tax years unless transferred.
Understanding the 2023 Clean Vehicle Tax Credit Amount
The amount of the Clean Vehicle Tax Credit varies depending on when you take possession of your new vehicle. The delivery date, not the purchase date, determines which set of rules applies.
Vehicles Placed in Service Between January 1 and April 17, 2023:
For vehicles placed in service during this period, the credit calculation is based on battery capacity:
- Base Amount: $2,500
- Battery Capacity Bonus: $417 for vehicles with at least 7 kilowatt-hours (kWh) of battery capacity.
- Additional Battery Capacity Bonus: An additional $417 for each kWh of battery capacity exceeding 5 kWh.
- Maximum Credit: Capped at $7,500.
In practice, the minimum credit for a qualifying vehicle during this period was typically $3,751, reflecting the base amount plus the minimum battery capacity bonus for a 7 kWh battery.
Vehicles Placed in Service On or After April 18, 2023:
For vehicles placed in service from April 18, 2023, onwards, the credit structure became more complex, incorporating new requirements related to critical minerals and battery components. To receive the full $7,500 credit, vehicles must meet these new stipulations.
The credit is broken down into two $3,750 components:
- $3,750 if the vehicle meets the critical minerals requirement.
- $3,750 if the vehicle meets the battery components requirement.
- $7,500 if the vehicle satisfies both requirements.
Vehicles failing to meet either the critical mineral or battery component criteria are not eligible for any credit. This change emphasizes the sourcing and manufacturing of EV batteries.
What Cars Qualify for the 2023 Tax Credit?
Not every EV or FCV qualifies for the Clean Vehicle Tax Credit. Specific criteria must be met regarding the vehicle itself and the sale transaction.
A qualifying vehicle must:
- Have a battery capacity of at least 7 kWh.
- Have a gross vehicle weight rating (GVWR) of less than 14,000 pounds.
- Be manufactured by a “qualified manufacturer” (most major automakers are).
- Undergo final assembly in North America.
- For vehicles placed in service after April 17, 2023, meet critical mineral and battery component requirements.
Furthermore, the vehicle sale must meet these conditions:
- You must purchase the vehicle new.
- The seller must provide you with a time-of-sale report and register online with the IRS, reporting the necessary vehicle information. Failure by the seller to comply with these reporting requirements renders the vehicle ineligible for the tax credit.
There are also Manufacturer Suggested Retail Price (MSRP) limitations for qualifying vehicles:
- $80,000 for vans, sport utility vehicles, and pickup trucks.
- $55,000 for all other vehicle types.
The MSRP includes manufacturer-installed options, accessories, and trim but excludes destination fees. You can usually find information on your vehicle’s weight, battery capacity, final assembly location (listed as “final assembly point”), and Vehicle Identification Number (VIN) on the vehicle’s window sticker. To verify if a specific car 2023 model qualifies, you can check the fueleconomy.gov website, which provides updated lists of eligible vehicles.
How to Claim Your 2023 Clean Vehicle Tax Credit
Claiming the Clean Vehicle Tax Credit involves a couple of key steps, both at the time of purchase and when filing your taxes.
Obtain a Time-of-Sale Report
When you purchase your qualifying vehicle, the dealer is obligated to provide you with a paper copy of a time-of-sale report. This document is crucial as it confirms that the dealership has reported the necessary transaction information to the IRS.
- Keep this report for your records. It serves as proof of IRS notification by the dealer.
- If you do not receive this report, it’s essential to follow up with the dealer and consult the IRS’s step-by-step guide for claiming the credit.
File Form 8936 with Your Tax Return
To officially claim the Clean Vehicle Tax Credit, you must file Form 8936, Clean Vehicle Credits when you file your federal income tax return for the year in which you took delivery of the vehicle. This is required whether you intend to claim the credit directly on your taxes or if you have transferred the credit to the dealer at the time of purchase (if that option is available). You will need your vehicle’s VIN to complete Form 8936.
For any further questions or detailed guidance, refer to the IRS’s comprehensive step-by-step guide and Publication 5905. Driving a car 2023 that’s electric or fuel cell powered not only benefits the environment but can also offer significant financial advantages through the Clean Vehicle Tax Credit. Make sure to verify your eligibility and vehicle qualification to take full advantage of these savings.
