Purchasing a new electric vehicle (EV) or fuel cell vehicle (FCV) in 2023 or beyond can make you eligible for a significant clean vehicle tax credit. The U.S. government is offering a tax credit to incentivize the adoption of clean energy vehicles. This credit, potentially worth up to $7,500, is designed to make electric and fuel cell vehicles more affordable for consumers. Understanding the qualifications and amounts of this credit is crucial if you’re considering buying a new clean vehicle this year.
Who Can Qualify for the Clean Vehicle Credit in 2023?
The clean vehicle tax credit is available to both individuals and businesses under Internal Revenue Code Section 30D. However, certain criteria must be met to qualify. To be eligible, you must:
- Purchase for Personal Use: You must buy the new EV or FCV for your own use and not for resale purposes.
- Primary Use in the U.S.: The vehicle must be used primarily within the United States.
Furthermore, your income level, specifically your modified Adjusted Gross Income (AGI), must fall within certain limits. These income thresholds are designed to ensure the credit is accessible to those who need it most:
- Married Filing Jointly or Surviving Spouse: $300,000
- Head of Household: $225,000
- All Other Filers: $150,000
To determine if you meet the income requirements, you can use your modified AGI from either the year you take delivery of the vehicle or the preceding year, whichever is lower. If your modified AGI is below the specified threshold in either of these years, you are eligible to claim the credit. It’s important to note that this tax credit is nonrefundable unless you transfer it at the point of sale. This means the credit can reduce your tax liability to $0, but you won’t receive any of the credit back as a refund if it exceeds your tax liability, unless new rules for point-of-sale rebates apply.
Understanding the 2023 Clean Vehicle Credit Amount
The amount of the clean vehicle tax credit depends on when the vehicle was placed in service (delivery date), irrespective of the purchase date. The calculation methods differ for vehicles placed in service before and after April 18, 2023, due to changes enacted through the Inflation Reduction Act of 2022.
Vehicles Placed in Service Between January 1 and April 17, 2023
For EVs and FCVs placed in service during this period, the clean vehicle tax credit was calculated as follows:
- Base Amount: $2,500
- Battery Capacity Bonus: $417 for vehicles with at least 7 kilowatt-hours (kWh) of battery capacity.
- Additional Battery Capacity Bonus: $417 for each kWh of battery capacity exceeding 5 kWh.
- Maximum Credit: Capped at $7,500.
Generally, for vehicles with the minimum 7 kWh battery capacity, the minimum credit amounted to $3,751 ($2,500 + 3 x $417).
Vehicles Placed in Service On or After April 18, 2023
For vehicles placed in service from April 18, 2023, onwards, the calculation of the clean vehicle tax credit became more complex, incorporating new requirements for critical minerals and battery components. To qualify for the credit, vehicles must now meet specific criteria related to these components. The credit amount is structured as follows:
- Critical Minerals Requirement Met: $3,750
- Battery Components Requirement Met: $3,750
- Both Requirements Met: $7,500
Vehicles that fail to meet either the critical minerals or the battery components requirement are not eligible for any clean vehicle tax credit. This change reflects an effort to encourage domestic manufacturing and sourcing of battery materials and components.
What Makes a Vehicle Qualify for the 2023 Credit?
To be considered a qualified clean vehicle for the 2023 tax credit, several technical and manufacturing criteria must be met. A qualifying vehicle must:
- Battery Capacity: Possess a battery capacity of at least 7 kWh.
- Gross Vehicle Weight Rating (GVWR): Have a GVWR of less than 14,000 pounds.
- Qualified Manufacturer: Be manufactured by a qualified manufacturer.
- North American Assembly: Undergo final assembly in North America.
- Critical Mineral and Battery Component Requirements: Meet the new critical mineral and battery component stipulations, effective from April 18, 2023.
Furthermore, the sale of the vehicle must meet specific conditions:
- New Vehicle Purchase: You must purchase the vehicle new.
- Seller Reporting: The seller is obligated to provide you with all necessary qualification information at the time of sale and report the same information to the IRS. Failure by the seller to comply with these reporting requirements will render the vehicle ineligible for the tax credit.
In addition to these criteria, there are Manufacturer Suggested Retail Price (MSRP) limitations for qualifying vehicles:
- Vans, SUVs, and Pickup Trucks: MSRP cannot exceed $80,000.
- Other Vehicles: MSRP cannot exceed $55,000.
The MSRP includes manufacturer-installed options, accessories, and trim, but excludes destination fees. It is important to remember that the MSRP is not necessarily the final price you will pay for the vehicle. You can typically find details regarding your vehicle’s weight, battery capacity, final assembly location (listed as “final assembly point”), and Vehicle Identification Number (VIN) on the vehicle’s window sticker.
Claiming Your 2023 Clean Vehicle Tax Credit
To claim the clean vehicle tax credit, you will need to file Form 8936, Clean Vehicle Credits with your annual tax return for the year in which you took delivery of the vehicle. You will be required to provide the vehicle’s VIN on this form.
Time-of-Sale Report
When you finalize your clean vehicle purchase, the dealer is required to provide you with a paper copy of a time-of-sale report.
- Keep this report: This document serves as proof that the dealer has reported the necessary purchase information to the IRS on the date of sale.
- If you don’t receive a report: Consult the IRS step-by-step guide for claiming the clean vehicle tax credit for further instructions.
Filing Form 8936
Whether you have transferred the credit at the time of purchase or are claiming it when you file your taxes, submitting Form 8936 with your tax return is mandatory. For any questions or concerns about the process, the IRS provides a detailed step-by-step guide to assist you in claiming your clean vehicle tax credit.
Related Resources
For further information on clean vehicle credits and related topics, you may find the following resources helpful:
- Used Clean Vehicle Credit
- Commercial Clean Vehicle Credit
- Credits for new plug-in EVs purchased before 2023
- Publication 5866, New Clean Vehicle Tax Credit Checklist PDF
- Publication 5905, Information for Consumers Purchasing a New or Used Clean Vehicle PDF
- Step-by-step guide on how to claim a clean vehicle tax credit
By understanding these guidelines, you can determine your eligibility for the 2023 Clean Vehicle Tax Credit and potentially save thousands of dollars on your next car purchase.
