The new season of cars are starting to roll onto dealership lots, and if a new car is in your future this year you may want to consider buying a new plug-in electric vehicle (EV) or fuel cell vehicle (FCV) to qualify for a clean vehicle tax credit.
Here is how to determine if your 2023 vehicle purchase will qualify and what the value of the credit may be:
- You may qualify for a credit up to $7,500 if you buy a new, qualified plug-in EV or fuel cell electric vehicle (FCV).
- The green vehicle tax credit is nonrefundable, which means 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.
- You can learn whether a green vehicle is a van, sport utility vehicle, pickup truck or other type. Check out the IRS listing of qualified vehicles and manufacturers.
- 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. To check online if a specific vehicle meets the requirements for final assembly location, you can go to the Department of Energy's page on Electric Vehicles with Final Assembly in North America and use the VIN Decoder tool under "Specific Assembly Location Based on VIN."
The Inflation Reduction Act of 2022 changed the rules for this credit for vehicles purchased from 2023 to 2032.
To qualify for the credit you must buy the vehicle for your own use primarily in the United States, not for reselling.
The recent updates to the regulations regarding the clean vehicle credit have further enriched it by:
- Increasing the $500 lifetime tax credit limit for qualifying energy-efficient improvements to a residence is increased to an $1,200 annual tax credit.
- Eliminating the manufacturing limit on qualifying electric vehicles, (currently this applies to General Motors, Tesla, Lexus, and Toyota electric vehicles) for the credit which used to be in place.
- Adding an available electric vehicle credit for used electric vehicles of 30% or $4,000, whichever is lower, with AGI limits of $150,000 for married, $112,500 for head of household and $75,000 for single filers.
In addition, your modified adjusted gross income (AGI) may not exceed these thresholds to be eligible:
- $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.
To claim the credit, you will need to 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 to provide your vehicle's VIN.
Ready to start the process of purchasing an electric vehicle in 2023? Now may be an ideal time to do it based on the tax incentives available. If you have questions, talk to a tax professional about whether your potential new clean vehicle purchase will qualify for this tax credit.
Jonathan Medows is a New York City based CPA who specializes in taxes and business issues for freelancers and self-employed individuals across the country. He offers a free consultation to members of Freelancer’s Union and has many guides and resources covering tax, accounting and business issues relevant to freelancers on his website, www.cpaforfreelancers.com.
Jonathan is happy to provide an initial consultation to freelancers. To qualify for a free consultation you must be a member of the Freelancers Union and mention this article upon contacting him. Please note that this offer is not available March 1 through April 18 and covers a general conversation about tax responsibilities of a freelancer and potential deductions. These meetings do not include review of self-prepared documents, review of self-prepared tax returns, or the review of the work of other preparers. The free meeting does not include the preparation or review of quantitative calculations of any sort. He is happy to provide such services but would need to charge an hourly rate for his time.