Tax Advantages of Home Ownership
Category: Tax
What is the Electric Vehicle Tax Credit?
Established in 2008 and updated and extended several times, the Electric Vehicle Tax Credit is designed to encourage consumers to purchase more environmentally-friendly cars, reduce greenhouse gas emissions and the nation’s dependence on fossil fuels, and improve energy security.
Available to individuals who purchase a new EV or PHEV that meets specific criteria, the credit is a dollar-for-dollar reduction in federal income tax the purchaser owes up to the maximum amount available (currently $7,500 for eligible EVs and PHEVs). The exact amount for which a given consumer may qualify depends on several factors, including the type of vehicle, its battery size, and the number of units sold by the manufacturer — once a manufacturer has sold 200,000 qualifying vehicles in the US, the tax credit begins to phase out over a period of time.
It is also important to note that the tax credit is not a rebate or cash-back incentive at the time of purchase. Instead, it is a credit applied when the purchaser files their federal tax return for the year they purchased the qualifying vehicle. The credit can be used to offset any tax liability the purchaser owes, and any remaining credit can be carried over to future tax years.
How does the EV Tax Credit work in 2023?
In 2023, the EV Tax Credit remains an essential incentive for individuals looking to purchase an electric vehicle (EV) in the United States. However, new restrictions created by 2022’s Inflation Reduction Act have complicated things, leading to what Chris Harto, senior policy analyst for Consumer Reports, described as “chaos for the consumer.”
The law, passed in August, tightened the availability of the full tax credit, rendering electric vehicles and plug-in hybrids assembled outside North America ineligible for the entire $7,500. Furthermore, new rules issued just last month by the Treasury Department further restricted qualification by requiring that a certain percentage of the components and minerals in car batteries must be sourced from the United States or its trade allies.
As a result, only certain electric car models from some automakers qualify for the full tax credit, while automakers whose models are no longer eligible are promoting leased electric cars.
Other new rules include:
- The maximum MSRP price for new SUVs, vans, and pickup trucks is $80,000, while sedans and other qualifying new vehicles have a limit of $55,000.
- The buyer’s income limits are determined by their modified adjusted gross income and tax filing status.
- Used EVs sold by dealers can qualify for a one-time tax credit of up to $4,000.
- The manufacturer vehicle sales cap, which limited incentives for brands that reached 200,000 units sold, has been eliminated.
- From 2024, buyers can take the EV tax credit directly from the dealer at the time of purchase instead of waiting for the next tax season.
The changes are intended to encourage North American automakers to rely less on Chinese-based supply chains and more on the United States and its allies.
However, with electric vehicles often costing as much as $11,000 more than a typical gas-powered new car, the availability of this tax credit is crucial for many car buyers considering an electric or hybrid vehicle. That means the new rules may hinder the goal of getting more people to buy EVs in the short term.
Who qualifies for the Electric Vehicle Tax Credit?
The IRS advises taxpayers to use the tool on the FuelEconomy.gov website to determine the eligibility of vehicles for the tax credit, as the new requirements mentioned above will affect how many cars qualify.
The website offers filtering options based on purchase scenario, model year, and vehicle type and make, which can help identify eligible vehicles based on their delivery date.
As of this writing, FuelEconomy.org lists the following fully electric and plug-in hybrid vehicles as eligible for either a full or partial tax credit if delivered on or after April 18, 2023:
| Car Make & Model | Year | Vehicle Type | Tax Credit Amount | MSRP Limit |
| Cadillac | ||||
| Lyriq | 2003–2024. | EV. | $7,500. | $80,000. |
| Chevrolet | ||||
| Bolt Bolt EUV | 2022–2023. | EV. | $7,500. | $55,000. |
| Blazer | 2024. | EV. | $7,500. | $80,000. |
| Equinox | 2024. | EV. | $7,500. | $80,000. |
| Silverado | 2024. | EV. | $7,500. | $80,000. |
| Chrysler | ||||
| Pacifica | 2022–2023. | PHEV. | $7,500. | $80,000. |
| Ford | ||||
| Escape | 2022–2023. | PHEV. | $3,750. | $80,000. |
| E-Transit | 2022–2023. | EV. | $3,750. | $80,000. |
| F-150 Lightning (standard and extended range battery) | 2022–2023. | EV. | $7,500. | $80,000. |
| Mustang Mach-E (standard and extended range battery) | 2022–2023. | EV. | $3,750. | $80,000. |
| Jeep | ||||
| Grand Cherokee PHEV 4xe | 2022–2023. | PHEV. | $3,750. | $80,000. |
| Wrangler PHEV 4xe | 2022–2023. | PHEV. | $3,750. | $80,000. |
| Lincoln | ||||
| Aviator Grand Touring | 2022–2023. | PHEV. | $7,500. | $80,000. |
| Corsair Grand Touring | 2022–2023. | PHEV. | $3,750. | $80,000. |
| Rivian | ||||
| R1S R1T | 2023. | EV. | $3,750. | $80,000. |
| Tesla | ||||
| Model 3 Standard Range RWD | 2022–2023. | EV. | $3,750. | $55,000. |
| Model 3 Performance | 2022–2023. | EV. | $7,500. | $55,000. |
| Model Y Performance Model Y AWD Model Y Long Range AWD | 2022-2023. | EV. | $7,500. | $80,000. |
| Model 3 Long Range AWD | 2023. | EV. | $3,750. | $55,000. |
| Volkswagen | ||||
| ID.4 Pro. ID.4 Pro S ID.4 Pro S Plus ID.4 AWD Pro ID.4 AWD Pro S ID.4 AWD Pro S Plus ID.4 S ID.4 Standard | 2023. | EV. | $7,500. | $80,000. |
How do you claim the $7,500 EV Tax Credit?
For qualified plug-in electric drive motor vehicles placed in service before 2023, qualified two-wheeled plug-in electric vehicles acquired before but placed in service in 2022, and new clean vehicles placed in service after 2022, use Form 8936 and file it with your tax return (you will need your vehicle’s VIN).
Remember, you can only claim the credit once — when you purchase the vehicle. Additionally, as a nonrefundable tax credit, it can reduce the amount you owe on the purchase to zero, but no further. In other words, if the amount of the credit exceeds the amount of taxes owed, you will forfeit the remaining amount.
In closing…
In light of the complications brought on by the new rules and restrictions, you may be confused. Our team of experts stands ready to answer your questions and assist you with your needs.
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