Purchasing a new electric vehicle (EV) can be a significant step towards a greener future and potentially offer substantial financial benefits. If you’re considering buying a new plug-in electric vehicle (EV) or a fuel cell vehicle (FCV), understanding the Clean Vehicle Tax Credit is crucial. For vehicles placed in service in 2023 or later, the U.S. government offers a tax credit that could significantly reduce your purchase price. This guide will walk you through the key aspects of this credit, ensuring you have the information needed to determine if your new EV qualifies. For detailed official information, refer to Publication 5866, New Clean Vehicle Tax Credit Checklist PDF from the IRS.
It’s essential to be aware that when you purchase your new EV, the seller is obligated to provide you with information regarding the vehicle’s eligibility for this tax credit. Furthermore, sellers are required to register online and report this same information to the IRS. If these reporting requirements are not met by the seller, your newly purchased EV will not be eligible for the clean vehicle tax credit. For more comprehensive details on seller responsibilities and consumer information, consult Publication 5905, Information for Consumers Purchasing a New or Used Clean Vehicle PDF.
For those interested in exploring other clean vehicle incentives, information is also available for used clean vehicles, qualified commercial clean vehicles, and new plug-in EVs purchased before 2023.
Who is Eligible for the New EV Tax Credit?
Individuals and businesses purchasing new, qualified plug-in EVs or fuel cell electric vehicles (FCVs) may be eligible for a tax credit up to $7,500 under Internal Revenue Code Section 30D. The Inflation Reduction Act of 2022 brought significant changes to the rules governing this credit, specifically for vehicles acquired between 2023 and 2032.
To qualify for this credit, certain criteria must be met by the purchaser:
- Purchase for Personal Use: The vehicle must be purchased for your own use and not for resale purposes.
- Primary Use in the U.S.: The vehicle must be used primarily within the United States.
Furthermore, your modified Adjusted Gross Income (AGI) must fall within specific limits to be eligible for the credit. These AGI thresholds are as follows:
- $300,000: For married couples filing jointly or qualifying surviving spouses.
- $225,000: For heads of households.
- $150,000: For all other filing statuses.
Eligibility is determined by your modified AGI from either the year you take delivery of the new EV or the preceding year, whichever is lower. If your modified AGI is below the specified threshold in either of these two years, you can claim the clean vehicle tax credit.
It’s important to note that unless you choose to transfer the credit to an eligible entity at the point of sale (a feature that may become available starting in 2024), the clean vehicle tax credit is nonrefundable. This means the credit can reduce your tax liability to $0, but you will not receive any of the credit back as a refund if the credit amount exceeds your tax liability. Any unused portion of the credit cannot be carried forward to future tax years.
Understanding the Credit Amount for New EVs
The amount of the clean vehicle tax credit is determined by when the vehicle is placed in service (delivery date), irrespective of the purchase date. The calculation method differs depending on whether the vehicle was placed in service before or after April 18, 2023.
Vehicles Placed in Service Between January 1 and April 17, 2023:
For EVs placed in service during this period, the credit calculation was 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 Capacity Bonus: $417 for each kWh of battery capacity exceeding 5 kWh.
- Maximum Credit: Capped at $7,500.
In most cases, the minimum credit amount was $3,751, applicable to vehicles with the minimum qualifying battery capacity of 7 kWh ($2,500 + (3 x $417)).
Vehicles Placed in Service on or After April 18, 2023:
For New Evs placed in service on or after April 18, 2023, more stringent requirements were introduced, specifically concerning critical mineral and battery component sourcing. To qualify for the credit, vehicles must now meet the previously mentioned criteria and these new battery-related requirements. The credit amount is structured as follows:
- $3,750: If the vehicle meets only the critical minerals requirement.
- $3,750: If the vehicle meets only the battery components requirement.
- $7,500: If the vehicle meets both the critical minerals and battery components requirements.
Vehicles that fail to meet either the critical minerals or the battery component requirements are not eligible for any clean vehicle tax credit. These new requirements are designed to encourage domestic battery production and sourcing of critical minerals, aiming to strengthen the U.S. electric vehicle supply chain.
What Qualifies as a New Clean Vehicle for the Tax Credit?
To be considered a qualified new clean vehicle for the tax credit, several technical and sales-related criteria must be met.
Vehicle Requirements:
- Battery Capacity: Must have a battery capacity of at least 7 kWh.
- Gross Vehicle Weight Rating (GVWR): Must have a GVWR of less than 14,000 pounds.
- Qualified Manufacturer: Must be manufactured by a “qualified manufacturer” as defined by the IRS.
- North American Assembly: Must undergo final assembly in North America. This is a crucial point, and the fueleconomy.gov website provides a tool to check vehicle eligibility, including assembly location.
- Critical Mineral and Battery Component Requirements: For vehicles placed in service after April 17, 2023, these requirements must be met as described above.
Sale Requirements:
- New Vehicle Purchase: The vehicle must be purchased new; leased vehicles do not qualify for the credit for the lessee, although the lessor (leasing company) may be eligible.
- Seller Reporting: The vehicle seller must provide required information to you at the time of sale and report the same information to the IRS. As mentioned earlier, this reporting is mandatory for the vehicle to be eligible for the credit.
Manufacturer Suggested Retail Price (MSRP) Limits:
To ensure the credit benefits a broader range of consumers, there are MSRP limitations for qualifying new EVs:
- $80,000: For vans, sport utility vehicles (SUVs), and pickup trucks.
- $55,000: For all other vehicle types (sedans, hatchbacks, wagons, etc.).
The MSRP includes manufacturer-installed options, accessories, and trim, but excludes destination fees. It is the price suggested by the manufacturer and may differ from the actual price you negotiate and pay. You can typically find the vehicle’s weight, battery capacity, final assembly location (“final assembly point”), and Vehicle Identification Number (VIN) on the vehicle’s window sticker.
Claiming the New EV Tax Credit
To claim the clean vehicle tax credit, you will need to file Form 8936, Clean Vehicle Credits with your annual tax return. You will be required to provide the VIN of your new EV when filing this form.
Obtaining a Time-of-Sale Report
Upon completing your new EV purchase, the dealership is obligated to provide you with a paper copy of a time-of-sale report. This report is critical documentation.
- Record Keeping: Retain this copy for your personal records. It serves as confirmation that the dealer has fulfilled their obligation to report the sale information to the IRS on the date of purchase.
- Troubleshooting: If you do not receive a copy of this report, it’s crucial to follow the step-by-step guide provided by the IRS to ensure your eligibility for the credit is not jeopardized.
Filing Form 8936 with Your Tax Return
Regardless of whether you plan to claim the credit directly on your tax return or potentially transfer it to the dealer in the future (if that option becomes available), you must file Form 8936 when you file your tax return for the year in which you took delivery of the new EV.
For any questions or concerns about claiming the credit, the IRS provides a detailed step-by-step guide to assist you through the process.
Related Resources
- Publication 5866, New Clean Vehicle Tax Credit Checklist PDF
- Publication 5905, Information for Consumers Purchasing a New or Used Clean Vehicle PDF
- Used Clean Vehicle Credit
- Commercial Clean Vehicle Credit
- Credits for new electric vehicles purchased in 2022 or before
- Form 8936, Clean Vehicle Credits
- How to claim a clean vehicle tax credit
- fueleconomy.gov
