Under the Inflation Reduction Act (IRA), the EV Tax Credit was extended for several more years. It will also be expanded to cover both new and used cars.
The original EV tax credit, known as the plug-in electric vehicle credit, has been rebranded to the Clean Vehicle Credit (CVC) under the IRA bill and covers battery/fuel-cell and hydrogen vehicles. It will be available till 2032.
Additional qualification criteria was also added to promote domestic production of EV vehicles and batteries. This will be phased in over the next 5 to 8 years as discussed in the next section.
The maximum amount of the extended EV tax credit is $7,500 credit for new vehicles. A new $4,000 or 30% of purchase price (whichever is less) credit was added for used vehicles.
There is a cap on the price of eligible vehicles at $55,000 for new cars and $80,000 for new trucks, vans and SUV’s. These limits mean high-end electric vehicles would likely not qualify for this credit. Used EV’s will have a $25,000 limit.
The credit will only be available for qualifying EV cars purchased in 2023 and beyond.
Eligibility Criteria (2023 and beyond)
The IRS has released additional guidelines (Rev Proc 2022-42) that outlines more details on eligibility rules for manufacturers and sellers of EV/Clean cars. These guidelines provide the details needed for EV cars to be eligible for tax credits and other incentives provided under the IRA bill. Details are provided below.
This credit would be available for single filers making less than $150K a year. Head of household filers would need to make less than $225K and $300K would be the maximum MAGI for joint filers to qualify.
In addition to income and price thresholds, the IRA bill includes additional criteria for the domestic manufacturing and final assembly of EV cars.
This is encourage domestic production of these vehicles and support the next generation of mass-produced EV cars being made by Tesla Ford, Toyota and GM.
The criteria for the domestic manufacturing and assembling of vehicles will gradually increases over the next few years as follows
- For vehicles in service before January 1st, 2024, 40% of the vehicle should be made and manufactured domestically.
- For 2024, this rises to 50% and then to 60% in 2025.
- For 2026 it will be 70% and then rise to 80% in 2027 and beyond.
Batteries used in EV’s will also be required to meet certain raw materials input criteria and also the manufactured or assembled in North America criteria. However the criteria is more strict, with 100% of the battery required to be made domestically by 2029.
Based on the 2027 criteria (70% domestic manufacturing), only 5% of current EV cars qualify. So don’t rush out an buy your dream EV before confirming it will meets the manufacturing criteria to get this credit.
Used cars will have a price cap of $25,000 for credit qualification and would need to be at least two years old.
You can see more on the eligibility criteria in Part 4 (starting page 381) of the final bill.
Which Vehicles Qualify for the EV Credit?
The US Dept of Energy (DoE) provides a list of vehicles that qualify for the credit. This list will be updated as manufacturers adjust vehicle specifications to meet the required criteria.
|2023||BMW X5 xDrive45e (PHEV)|
|2023||Cadillac Lyriq||2022 Manufacturer sales cap met|
|2023||Chevrolet Bolt EV||2022 Manufacturer sales cap met|
|2023||Jeep Grand Cherokee 4xe|
|2023||Jeep Wrangler 4xe|
|2023||Lincoln Aviator PHEV|
|2023||Mercedes EQS SUV|
|2023||Tesla Model 3||2022 Manufacturer sales cap met|
|2023||Tesla Model S||2022 Manufacturer sales cap met|
|2023||Tesla Model X||2022 Manufacturer sales cap met|
|2023||Tesla Model Y||2022 Manufacturer sales cap met|
How to Claim the EV Clean Vehicle Credit
Car buyers have the option to get the credit as a price reduction at the time of purchase (e.g. at an authorized dealership) or claiming it via their tax return if a private sales or you want to wait till end of the year to see if you qualify.
The credit claimed for the car at the time of purchase will need to be reported by the dealer to the IRS and cannot (and should not) be claimed again on the purchaser’s tax return (i.e. no double dipping!).
If your income is higher than projected at the end of the year (or lower) you will need to repay the part of the credit you are ineligible for or claim any additional amounts if your income is lower than expected.
The CVC is a tax credit, which means that it is not included in the gross income and is paid irrespective of if you are getting a refund or now.
This credit can only be claimed once per vehicle and will be based on the Vehicle Identification Number (VIN). So if you are buying a used EV in coming years, make sure you check that the credit was not already claimed for the car.
2022 EV CVC Criteria and Manufacturer Caps
While the focus of this article is on the 2023 EV tax credit expansion, the credit is still available in 2022, but subject to manufacturer caps (which are eliminated in 2023).
For autos purchased before December 31, 2022, the credit amount will range from $2,500 to $7,500, based on each vehicle’s battery capacity and weight. Manufacturers will have a 200,000 cap for vehicles that qualify for this tax credit rebate. See table above for some vehicles (like Tesla) that reached this cap for 2022.
EV Dealer Requirements and Disclosures
According to the bill, dealers will need to disclose, at the time of the sale, the MSRP of the vehicle, the value of the credit allowed and any other incentives available for purchasing the vehicle and the amount of the tax credit the purchase (taxpayer) is able to claim based on their projected income.
Dealers cannot claim the tax credit as a deductible business expense. However prior limits capping EV sales for manufacturers has been eliminated from 2023 onwards (still in place for 2022)
This will allow buyers (i.e. tax filers claiming the credit) to know what clean vehicle tax credit rebate they will get before buying the car.