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What is the Clean Vehicle Tax Credit ?
The IRS Clean Vehicle Tax Credit, also known as the federal electric vehicle (EV) tax credit, is a financial incentive provided by the U.S. government to encourage the purchase of qualifying electric vehicles (EVs) and plug-in hybrid vehicles (PHEVs). It helps reduce the cost of EVs for consumers.
The Clean Vehicle Tax Credits are a series of financial incentives aimed at promoting the adoption of environmentally friendly vehicles. This reduction in cost can be a substantial incentive for people to transition from traditional gasoline-powered cars to cleaner electric alternatives. Individuals who purchase a new qualified plug-in EV or fuel cell electric vehicle (FCV) for personal use may be eligible for the tax credit.
One of the key features of these tax credits is that they provide financial relief to consumers who purchase qualifying electric vehicles. The amount of the credit varies depending on factors such as the vehicle's battery capacity and overall efficiency. Generally, the credits range from $2,500 to $7,500 per vehicle, and they are designed to lower the upfront cost of EVs, making them more accessible to a wider range of consumers.
These tax credits have also been extended to manufacturers, which serves as an incentive for them to produce electric vehicles. Automakers can receive credits for each qualifying vehicle they sell, up to a certain cap. This encourages manufacturers to invest in the development and production of electric vehicles, further expanding the availability of cleaner transportation options in the market.
How Does the Clean Vehicle Tax Credit Work ?
The USA Clean Vehicle Tax Credit is designed to provide financial incentives for individuals and businesses to purchase qualifying electric vehicles. Here's how it generally works :
1) Qualifying Vehicles:
To be eligible for the tax credit, the vehicle must meet certain criteria. Generally, eligible vehicles are those that are primarily powered by a battery with a capacity of at least 7 kWh (kilowatt-hours) and are capable of being charged from an external source. The vehicle must also be new and purchased for personal use or leased for a minimum period.
2) Tax Credit Amount:
The amount of the tax credit varies based on the vehicle's battery capacity and its overall energy efficiency. Vehicles with larger battery capacities generally receive higher credits. The tax credit ranges from $2,500 to $7,500 per vehicle. Here's a general breakdown:
- Battery capacity of 7 kWh or more: Up to $7,500
- Battery capacity between 4 kWh and 5 kWh: Partial credit
3) Phase-out Threshold:
The tax credit has a phase-out threshold, meaning that once an automaker sells a certain number of eligible vehicles, the tax credit for that manufacturer's vehicles begins to phase out. This is to encourage early adoption by manufacturers and ensure that the credit is available for a broader range of vehicles. The specific phase-out threshold varies by manufacturer.
4) Claiming the Credit:
To claim the tax credit, individuals must file their federal income tax return using IRS Form 8936, which is specifically for the Qualified Plug-in Electric Drive Motor Vehicle Credit. Businesses that purchase eligible vehicles can also claim the credit on their corporate tax returns.
5) Limits and Restrictions:
It's important to note that the tax credit is non-refundable, which means it can reduce your tax liability to zero, but any excess credit cannot be refunded to you. Additionally, the credit may not be available for used EVs, and it's important to check the eligibility criteria and credit amount for the specific make and model of the vehicle you're interested in, as they can vary.
6) Expiration and Renewal:
A clean car tax credit may still be available to you if you purchased a new, certified clean vehicle in 2022 or earlier, but there are certain limitations. You must purchase both new and used clean automobiles prior to December 31, 2032, after which the IRA's clean-vehicle tax benefits will be lost
Who is Eligible for the Clean Vehicle Tax Credit ?
You can be eligible for a clean vehicle tax credit if you put a new plug-in electric vehicle (EV) or fuel cell vehicle (FCV) into service in 2023 or later. Business entities may also qualify if they purchase eligible vehicles for business purposes.
To be eligible, you must:
- Purchase it solely for personal use, not for resale.
- Use it primarily in the United States.
In addition, your modified adjusted gross income (AGI) cannot exceed:
Tax-filing status |
Modified adjusted gross income |
Married couples filing jointly |
$300,000 |
Heads of households |
$225,000 |
All other filers |
$150,000 |
Depending on which is less, you can use your modified AGI from the year you took receipt of the vehicle or the year before. You may be eligible for the credit if your adjusted AGI falls below the cutoff in one of the two years.
Since the credit is nonrefundable, so you cannot get back more on the credit than you owe in taxes. Any excess credit cannot be carried over to a later tax year.
Qualified Vehicles for Clean Vehicle Tax Credit
To qualify for tax credits, a vehicle must:
- Having batteries with a minimum capacity of 7 kilowatt hours.
- Less than 14,000 pounds for the gross vehicle weight rating
- Be produced by an qualified manufacturer.
- Final assembly take place in North America
- Meet crucial mineral and battery component standards (As of April 18, 2023).
The sale is only eligible if:
- You buy the car brand-new.
- At the time of the sale, the seller reports the necessary information to you and the IRS.
Additionally, the manufacturer suggested retail price (MSRP) of the vehicle cannot be greater than:
- $80,000 for pickup trucks, sport utility vehicles, and vans
- $55,000 for other vehicles
The window sticker for your car will contain the weight, battery capacity, final assembly position (final assembly point), and VIN. Click here to determine if a car is eligible for the new clean vehicle credit.
How Much is the Clean Vehicle Tax Credit ?
Regardless of the date of purchase, the credit's amount is determined by when you took delivery of the vehicle and put it into service.
For vehicles put into service between January 1 and April 17, 2023:
- Base amount: $2,500
- Additionally $417 for a vehicle with a battery capacity of at least 7 kilowatt hours.
- Further $417 for every additional kilowatt hour of battery capacity above 5 kilowatt hours.
- Total up to $7,500
In general, for a car with a minimum battery capacity of 7 kilowatt hours, the minimum credit will typically be $3,751 ($2,500 + 3 x $417).
For vehicles put into service on or after April 18, 2023:
Vehicles must satisfy all of the aforementioned standards as well as new ones for essential minerals and battery components to qualify for a credit of up to:
- $3,750, if the car just satisfies the critical minerals criteria.
- $3,750, if the car just satisfies the specifications for the battery components.
- If the car satisfies both requirements, $7,500
A vehicle won't be qualified for a credit if it doesn't fulfil either condition.
How to Claim the Clean Vehicle Tax Credit ?
To claim the IRS Clean Vehicle Tax Credits, you will need to follow specific steps and complete the necessary forms when you file your federal income tax return. Here's a general guide on how to claim the tax credit:
1) Purchase or Lease an Eligible Vehicle:
Ensure that you have purchased or leased a qualifying electric vehicle (EV) or plug-in hybrid vehicle (PHEV) that meets the criteria for the tax credit. The vehicle must be new and intended for personal use or leased for a minimum period.
2) Gather Information:
Collect all relevant information about your vehicle, including its make, model, and purchase price. You may also need the vehicle's manufacturer certification that it qualifies for the tax credit.
3) Determine the Amount of the Tax Credit:
The tax credit amount depends on the battery capacity and energy efficiency of the vehicle. You can find this information in the vehicle's specifications or consult the manufacturer's certification.
4) Fill Out IRS Form 8936:
To claim the Clean Vehicle Tax Credit, you'll need to complete IRS Form 8936, "Qualified Plug-in Electric Drive Motor Vehicle Credit." You can download this form from the IRS website or obtain it from your tax preparer.
5) Complete Your Tax Return:
Include Form 8936 when you file your federal income tax return (e.g., Form 1040). Follow the instructions provided with the form to accurately report the tax credit. Ensure that you have filled out all required fields, including the vehicle's VIN (Vehicle Identification Number) and other relevant details.
6) Calculate Your Tax Liability:
The tax credit will reduce your tax liability. It's important to note that the credit is non-refundable, meaning it can reduce your tax liability to zero, but any excess credit cannot be refunded to you.
7) File Your Tax Return:
Submit your completed tax return, including Form 8936, to the IRS by the tax filing deadline, which is typically April 15th for most individuals. If you need an extension, be sure to file for one to avoid penalties.
8) Keep Records:
Maintain copies of all documentation related to the purchase or lease of the eligible vehicle and the tax credit claim. This includes purchase or lease agreements, manufacturer certification, and a copy of your filed tax return.
To take full advantage of the Clean Vehicle Tax Credit, individuals should consult with the IRS, a tax advisor, or a knowledgeable dealer to ensure they meet the eligibility criteria and understand the specific credit amount applicable to the EV or PHEV they are considering.
Frequently Asked Questions
Is the tax credit refundable?
No, the Clean Vehicle Tax Credit is non-refundable. It can reduce your tax liability to zero, but any excess credit cannot be refunded to you.
Can I claim the credit for used electric vehicles?
No, the tax credit generally applies to new electric vehicles and plug-in hybrid vehicles. Used vehicles are typically not eligible for this credit.
Are there any phase-out limits for the tax credit?
Yes, the tax credit has a phase-out threshold for each manufacturer. Once an automaker sells a certain number of eligible vehicles, the tax credit for that manufacturer's vehicles begins to phase out. This is designed to encourage early adoption by manufacturers.
Where can I find more information about the Clean Vehicle Tax Credit?
You can find detailed information about the Clean Vehicle Tax Credit, including eligibility criteria and updates, on the official IRS website. Additionally, you can consult with a tax professional for personalized guidance.