What is the electric vehicle tax credit? EV tax credit 2023

What is the electric vehicle (EV) tax credit?

Among other things, the Inflation Reduction Act of 2022 changed the rules for credit for EVs bought in 2023 to 2032.

The credit is for up to $7,500 if you buy a new, qualified plug-in EV or fuel cell electric vehicle (FCV). And used electric car owners may qualify for up to $4,000 in tax breaks as of 2023. We will go into more detail on what qualifies below.

Who qualifies for the EV tax credit?

The credit is available to individuals and their businesses. To qualify, you must:

• Buy an EV for your own use, not for resale.
• Use it primarily in the U.S.

In addition, your modified adjusted gross income (MAGI) may not exceed:

• $300,000 for married couples filing jointly,
• $225,000 for heads of households, or
• $150,000 for all other filers.

You can use your MAGI from the year you take delivery of the vehicle, or the year before, whichever is less. If your MAGI is below the threshold in one of the two years, you can claim the credit.

The credit is nonrefundable, so you can't get back more on the credit than you owe in taxes. You also can't apply any excess credit to future tax years, according to the IRS.

EV tax credit 2023

The amount of the credit depends on when you placed the vehicle in service, or “took delivery,” regardless of purchase date.

For vehicles placed in service January 1, to April 17, 2023:

• $2,500 base amount
• Plus $417 for a vehicle with at least 7 kilowatt hours of battery capacity
• Plus $417 for each kilowatt hour of battery capacity beyond 5 kilowatt hours
• Up to $7,500 total

In general, the minimum credit for this period would be $3,751 ($2,500 + 3 times $417).

For vehicles placed in service April 18, 2023, and after:

Electric cars will have to meet all of the criteria listed above, plus meet new critical mineral and battery component requirements, for a credit of up to:

• $3,750 if the vehicle meets the critical minerals requirement only,
• $3,750 if the vehicle meets the battery components requirement only, or
• $7,500 if the vehicle meets both.

If the vehicle doesn’t meet these requirements, you won’t get this credit.

How is the EV tax credit calculated?

In general, the minimum credit will be $3,751 ($2,500 + 3 times $417), the credit amount for a vehicle with the minimum 7-kilowatt hours of battery capacity.

To qualify, a vehicle must:

• Have a battery capacity of at least 7 kilowatt hours.
• Have a gross vehicle weight rating of less than 14,000 pounds (about 6,350.29 kg).
• Be made by a qualified manufacturer.
• FCVs do not need to be made by a qualified manufacturer to be eligible.
• Undergo final assembly in North America.
• Meet critical mineral and battery component requirements, as of April 18, 2023.

The sale qualifies only if:

• You buy the vehicle new.
• The seller reports required information to you at the time of sale and to the IRS.
• Sellers are required to report your name and taxpayer identification number to the IRS for you to be eligible to claim the credit.

It’s important to note that as of January 1, 2023, if you bought or buy a qualified used EV or FCV from a licensed dealer for $25,000 or less, you may be eligible for a used clean vehicle tax credit (also referred to as a previously owned clean vehicle credit). The credit equals 30% of the sale price up to a maximum credit of $4,000. This used EV car tax credit can only be claimed once every three years.

These credits are nonrefundable, so you can't get back more on the credit than you owe in taxes. You can't apply any excess credit to future tax years.

Again, purchases made before 2023 don't qualify.

In addition, the vehicle's manufacturer suggested retail price (MSRP) can't exceed:

• $80,000 for vans, sport utility vehicles and pickup trucks, and
• $55,000 for other vehicles.

MSRP is the retail price of the automobile suggested by the manufacturer, including manufacturer installed options, accessories, and trim, but excluding destination fees. It isn't necessarily the price you pay.

How to claim EV tax credit 

To claim the credit, file Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles) with your tax return.

You will need certain details about your car to claim this credit. You can find your vehicle's weight, battery capacity, final assembly location (listed as “final assembly point”), and VIN on the vehicle's window sticker. You can always work with your Jackson Hewitt Tax Professional on further criteria for this credit.

Even if you do not own an electric car just yet, you could very well own one in the years to come. The Environmental Protection Agency proposed rules in April 2023 that could result in as much as two-thirds of the new vehicle market shifting to EVs by 2032. Understanding and getting ahead of tax rules around the EV market could help your family save. Contact a local Jackson Hewitt Tax Pro to find out more about how you qualify or may qualify in the future.

About the Author

Jo Willetts, Director of Tax Resources at Jackson Hewitt, has more than 35 years of experience in the tax industry. As an Enrolled Agent, Jo has attained the highest level of certification for a tax professional. She began her career at Jackson Hewitt as a Tax Pro, working her way up to General Manager of a franchise store. In her current role, Jo provides expert knowledge company-wide to ensure that tax information distributed through all Jackson Hewitt channels is current and accurate.

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