2023+ EV Tax Credit – Extending the Electric Clean Vehicle Rebate For New and Used Cars

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.

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Eligibility Criteria

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.

When Will the EV Credit Extension be Available?

With the bill now passed, the details and criteria around the credit will need to be finalized by the Department of Transportation, which the Secretary (currently Pete Buttigieg) being the final approver.

The guidelines will then need to be reviewed and implemented by EV manufacturers and dealers, including determining which vehicles are eligible given the new focus on domestic assembly and manufacturing in the bill.

The bill specifically states that final guidelines around this EV credit have to be issued by December 31, 2022. This will mean that the credit won’t be available till 2023 and beyond.

So don’t rush out and buy your EV in the near term based solely on getting this credit. It is also likely that no near term changes will result at manufacturers and dealers as a result of this bill, since final guidelines won’t be in place until next year.

How to claim 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.

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.

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.

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2 thoughts on “2023+ EV Tax Credit – Extending the Electric Clean Vehicle Rebate For New and Used Cars”

  1. Hello! I am from USA I saw your blog. It was great, informative and really useful information that you shared with us. I introduced your website to my friends and he was totally impressed keep in touch

    Reply
  2. GM makes cars in Mexico how is it determined if it meets rebate rules. Blazer made in Mexico does that make it ineligible for rebates. If the is yes what about treaty rights of Mexico?

    Reply

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