Are you considering purchasing an electric or hybrid vehicle this year?
The Clean Vehicle Credit is one of the many new provisions from the Inflation Reduction Act passed into law in 2022. It modifies and replaces the popular Qualified Plug-In Electric Drive Motor Vehicle Credit that offered a $7,500 tax credit for qualifying vehicle purchases.
The new Clean Vehicle Credit was effective as of January 1, 2023 and offers a similar tax credit worth up to $7,500. However, Treasury Department regulations suggest it will be more difficult to receive the full $7,500 credit than before due to new critical materials and battery component rules.
Clean Vehicle Credit Overview
- The $7,500 credit is available for qualifying vehicles purchased after April 17, 2023 if final assembly occurred in North America and the vehicle meets both the critical materials and battery component requirements. If the vehicle is assembled in North America but only meets one of the critical materials or battery component requirements, the credit is limited to $3,750. The Department of Energy maintains this website where you can look up the eligible credit amount by vehicle model.
- Income limitations apply to buyers if their adjusted gross income (AGI) exceeds $300,000 for Married Filing Jointly, $225,000 for Head of Household, and $150,000 for other filers. No credit is allowed if the buyer’s income exceeds these limits.
- Vehicle price limits are introduced. The MSRP of qualifying vehicles cannot exceed $55,000 for cars and $80,000 for vans, trucks, and SUVs.
- Dealers can administer the tax credit starting in 2024. Buyers in 2023 will receive the credit when they file their 2023 tax returns. Next year, dealers will be allowed to reduce the purchase price by the credit amount when the vehicle is acquired.
- Qualifying vehicles purchased between January 1, 2023 and April 17, 2023 occurred before the Treasury Department released guidance about the critical materials and battery component requirements. Accordingly, those buyers will use a separate calculation based on the vehicle’s battery capacity to determine the credit amount, up to $7,500. You can research the eligible credit amount if you’ve already purchased a qualifying vehicle this year between January 1, 2023 and April 17, 2023 on the Department of Energy’s dedicated website.
- IRS introduces Used Clean Vehicle Credit which is effective January 1, 2023. Although similar in name to the Clean Vehicle Credit, the mechanics of the Used Clean Vehicle Credit are notably different. The Used Clean Vehicle Credit can be worth up to $4,000 for used vehicles purchased from a qualifying dealer. However, the credit requirements feature lower buyer income limits, lower vehicle price limits, vehicle age requirements, and other hurdles to qualify for the full credit. The Department of Energy maintains this website where you can look up qualifying used vehicles.
If you have questions about how the new federal Clean Vehicle Credit works in your specific situation, please contact Parkside Advisors.