The electric vehicle (EV) tax credit was created to incentivize consumers to purchase electric vehicles and reduce their carbon footprint. However, the new rules for the EV tax credit are not what most consumers or manufacturers were anticipating.
2023 EV tax credit qualifications explained
If you purchase a new plug-in electric vehicle (EV) or fuel cell vehicle (FCV) in 2023 or after, you might be eligible for a tax credit for clean vehicles.
You can find out about credits for used clean vehicles, qualified commercial clean vehicles, and new plug-in EVs that were bought before 2023.
You could be eligible for a credit of up to $7,500 under Section 30D of the Internal Revenue Code if you purchase a new, qualified plug-in EV or FCV. The Inflation Reduction Act of 2022 modified the rules for this credit for vehicles bought from 2023 to 2032.
The credit is available for individuals and their businesses.
To be eligible, you must:
- Buy it for your own use, not for resale
- Use it primarily in the U.S.
- Your modified adjusted gross income (AGI) can’t exceed
- $300,000 for married couples filing jointly
- $225,000 for heads of households
- $150,000 for all other filers You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your modified AGI 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 can’t apply any excess credit to future tax years. The amount of the credit depends on when you placed the vehicle in service (took delivery), regardless of purchase date.
For vehicles placed in service from 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 will be $3,751 ($2,500 + 3 times $417), which is the credit amount for a vehicle with the minimum 7 kilowatt hours of battery capacity.
For vehicles placed in service after April 17, 2023:
- Vehicles will have to meet all of the same criteria as listed above, plus they must 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
- $7,500 if the vehicle meets both A vehicle that doesn’t meet either requirement won’t be eligible for a credit.
Qualified Vehicles: 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
- Be made by a qualified manufacturer.
- FCVs don’t need to be made by a qualified manufacturer to be eligible. See Rev. Proc. 2022-42 for more detailed guidance.
- 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.
In addition, the vehicle’s manufacturer suggested retail price (MSRP) can’t exceed:
- $80,000 for vans, sport utility vehicles, and pickup trucks
- $55,000 for other vehicles
What Is the EV Tax Credit?
The EV tax credit is a federal tax credit that is available to consumers who purchase an electric vehicle. The credit is worth up to $7,500 and can be used to offset the cost of the vehicle. It is available for vehicles that are purchased after January 1, 2023. Prior to 2023, only the first 200,000 vehicles per manufacturer qualified for the federal tax credit. This is no longer the case as caps have been lifted which spells good news for manufacturers who have been ramping up production in recent months in anticipation of increased demand for battery powered vehicles.
How Are Consumers Impacted?
The new rules for the EV tax credit are having a significant impact on consumers. Many consumers who were planning to purchase an electric vehicle are now having a change of heart because the vehicle they wanted it no longer eligible for the credit.
In addition, the new rules are also impacting manufacturers. Many manufacturers are now unable to sell their vehicles to consumers who are eligible for the credit because they didn’t make the cut, though the Biden administration has stated that the list of qualified vehicles is likely to increase in the coming months.