How Does the Electric Vehicle Tax Credit Work in 2023?

Are you considering purchasing an electric vehicle in 2023?

You’re not alone; the market for electric cars has expanded rapidly in recent years and is expected to continue growing dramatically over the coming decade as consumer demand surges.

At the same time, while electric vehicles can be cheaper to own and maintain over time, the average upfront sticker price can still be well above that of a gas-powered car.

Fortunately, there is a way to mitigate that cost partially.

Last year’s Inflation Reduction Act significantly overhauled the Electric Vehicle Tax Credit, boosting incentives to get more electric vehicles (EVs) on the road. That means you could be eligible to save some money on your purchase of an electric vehicle (EV) or plug-in hybrid electric vehicle (PHEV) — and not only because of a potential $7,500 rebate.

However, the rules are more complicated than before, and understanding your eligibility can be tricky.

So, how does the electric vehicle tax credit work in 2023? What are the eligibility requirements? How much can you save?

These are all important questions to consider before purchasing an electric vehicle.

In this blog post, we’ll delve into the details of the electric vehicle tax credit, answer these questions, and more. So if you’re considering an electric vehicle in 2023, keep reading to learn everything you need to know about the electric vehicle tax credit.

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 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, 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 & ModelYearVehicle TypeTax Credit AmountMSRP Limit
Bolt Bolt EUV2022–2023.EV.$7,500.$55,000.
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.
Grand Cherokee PHEV 4xe2022–2023.PHEV.$3,750.$80,000.
Wrangler PHEV 4xe2022–2023.PHEV.$3,750.$80,000.
Aviator Grand Touring2022–2023.PHEV.$7,500.$80,000.
Corsair Grand Touring2022–2023.PHEV.$3,750.$80,000.
R1S R1T2023.EV.$3,750.$80,000.
Model 3 Standard Range RWD2022–2023.EV.$3,750.$55,000.
Model 3 Performance2022–2023.EV.$7,500.$55,000.
Model Y Performance Model Y AWD Model Y Long Range AWD2022-2023.EV.$7,500.$80,000.
Model 3 Long Range AWD2023.EV.$3,750.$55,000.
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 Standard2023.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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Jeff Coyle, CPA

Jeff Coyle, CPA, Partner of Rosenberg Chesnov, has been with the firm since 2015. He joined the firm after 20 years of business and accounting experience where he learned the value of accurate reporting, using financial information as a basis for good business decisions and the importance of accounting for management.

He is a diligent financial professional, able to manage the details and turn them into relevant business leading information. He has a strong financial background in construction, technology, consulting services and risk management. He also knows what it takes to create organizations having built teams, grown companies and designed processes for financial analysis and reporting.

His business experience includes:

Creating and preparing financial reporting, budgeting and forecasting.
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Providing insight on financial results and providing advice based on those results.

Jeff also has a long history of helping individuals manage their taxes and plan their finances including:

Income tax planning and strategy.
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Prior to joining the firm in 2015, Jeff was in the private sector where he held senior financial and management positions including Controller and Chief Financial Officer. He has experience across industries, including construction, technology and professional services which gives him a deep understanding of business.

Jeff graduated from Montclair State University, he is a CPA and member of the American Institute of Certified Public Accountants, New York State Society of Certified Public Accountants and New Jersey State Society of Public Accountants.

Jody H. Chesnov, CPA

Jody H. Chesnov, CPA, Managing Partner of Rosenberg Chesnov, has been with the firm since 2004.  After a career of public accounting and general management, Jody knows the value of good financials.  Clarity, decision making, and strategy all start with the facts – Jody has been revealing the facts and turning them into good business results for more than three decades.

He takes a pragmatic approach to accounting, finance and business. His work has supported many companies on their path to growth, including helping them find investors, manage scaling and overcome hurdles.  His experience and passion for business reach beyond accounting and he helps businesses focus on what the numbers mean organizationally, operationally and financially.

He has a particular expertise in early-stage growth companies.  His strengths lie in cutting through the noise to come up with useful, out of the box, solutions that support clients in building their businesses and realizing their larger visions.

Prior to joining the firm in 2004, Jody was in the private sector where he held senior financial and management positions including General Manager, Chief Financial Officer and Controller.  He has experience across industries, which gives him a deep understanding of business.

Jody graduated with a BBA in Accounting from Baruch College, he is a CPA and member of the American Institute of Certified Public Accountants and New York State Society of Certified Public Accountants.

In addition to delivering above and beyond accounting results, Jody is a member of the NYSCPA’s Emerging Tech Entrepreneurial Committee (ETEC), Private Equity and Venture Capital Committee and Family Office Committee.  

He is an angel investor through the Westchester Angels, and has served as an advisor for many startup companies and as a mentor through the Founders Institute.

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