2023 Clean Vehicle Tax Credit: Your Guide to Saving on a New EV or FCV

Purchasing a new electric vehicle (EV) or fuel cell vehicle (FCV) in 2023 or later could make you eligible for a significant clean vehicle tax credit. This incentive, designed to encourage the adoption of cleaner transportation, can reduce your tax burden and make owning an eco-friendly car more affordable. Understanding the qualifications and how to claim this credit is essential for any prospective EV or FCV buyer.

This guide breaks down the 2023 Clean Vehicle Tax Credit, outlining who qualifies, how much you can save, and which vehicles are eligible. We’ll navigate the complexities of the Inflation Reduction Act of 2022’s changes to this credit, ensuring you have all the information needed to take advantage of this opportunity.

Who Can Qualify for the 2023 Clean Vehicle Tax Credit?

The clean vehicle tax credit, as defined under Internal Revenue Code Section 30D, offers up to $7,500 for those who purchase a new, qualified plug-in EV or FCV. The rules for this credit were updated by the Inflation Reduction Act of 2022, specifically impacting vehicles bought from 2023 through 2032. Both individuals and businesses can benefit from this credit.

To be eligible for the 2023 Clean Vehicle Tax Credit, you must meet several key requirements:

Purchase for Personal Use: The vehicle must be bought for your own use and not for resale purposes.
Primarily Use in the U.S.: The vehicle must be used primarily within the United States.

In addition to these vehicle-related conditions, your income level also plays a role. Your modified Adjusted Gross Income (AGI) must not exceed certain thresholds to qualify for the credit:

Married Couples Filing Jointly or Surviving Spouse: $300,000
Heads of Households: $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 falls below the threshold in either of these years, you are eligible to claim the credit.

It’s important to note that if you opt not to transfer the credit to a dealer at the point of sale, the clean vehicle tax credit is nonrefundable. This means the credit amount cannot exceed your tax liability. Any unused portion of the credit cannot be carried forward to future tax years.

Understanding the 2023 Clean Vehicle Tax Credit Amount

The amount of the clean vehicle tax credit is determined by when you take possession of the vehicle (place it in service), irrespective of the purchase date. The calculation of the credit varies depending on whether your vehicle was placed in service before or after April 18, 2023.

Vehicles Placed in Service Between January 1 and April 17, 2023:

For vehicles placed in service during this period, the clean vehicle tax credit was calculated based on battery capacity:

Base Amount: $2,500
Battery Capacity Credit: $417 for vehicles with at least 7 kilowatt-hours (kWh) of battery capacity.
Additional Battery Capacity Credit: $417 for each kWh of battery capacity exceeding 5 kWh.
Maximum Credit: Capped at $7,500.

In practice, the minimum credit for vehicles in this period was generally $3,751, applicable to vehicles with the minimum 7 kWh battery capacity ($2,500 + (3 x $417)).

Vehicles Placed in Service On or After April 18, 2023:

For vehicles placed in service on or after April 18, 2023, the requirements became more stringent, incorporating new criteria related to critical minerals and battery components sourcing. To qualify for the credit in this period, vehicles must meet all the previously mentioned criteria, plus these new requirements:

Critical Minerals Requirement: Meeting this requirement makes the vehicle eligible for $3,750 of the credit.
Battery Components Requirement: Meeting this requirement makes the vehicle eligible for an additional $3,750 of the credit.
Maximum Credit (Both Requirements Met): A vehicle meeting both the critical minerals and battery components requirements is eligible for the full $7,500 credit.

Vehicles failing to meet either the critical minerals or battery component requirements will not be eligible for any clean vehicle tax credit. This change emphasizes the importance of vehicle manufacturers sourcing battery materials and components responsibly and within specific regions.

Identifying Qualified 2023 Clean Vehicles

Determining whether a specific vehicle qualifies for the 2023 Clean Vehicle Tax Credit involves several factors. You can check the fueleconomy.gov website, a government resource, for a list of eligible vehicles.

Beyond being listed as eligible, a qualifying vehicle must also meet these technical and manufacturing specifications:

Battery Capacity: A battery capacity of at least 7 kWh.
Gross Vehicle Weight Rating (GVWR): A GVWR of less than 14,000 pounds.
Qualified Manufacturer: Manufactured by a qualified manufacturer.
North American Final Assembly: Undergo final assembly in North America.
Critical Mineral and Battery Component Requirements: For vehicles placed in service after April 17, 2023, these requirements must be met.

Furthermore, the sale conditions must also be met:

New Vehicle Purchase: The vehicle must be purchased new.
Seller Reporting: The seller must provide required information to you at the time of sale and report the same information to the IRS. This seller reporting is crucial for the vehicle to be deemed eligible for the credit.

Finally, the vehicle’s Manufacturer Suggested Retail Price (MSRP) must not exceed certain limits:

Vans, Sport Utility Vehicles, and Pickup Trucks: $80,000
Other Vehicles: $55,000

The MSRP includes manufacturer-installed options, accessories, and trim but excludes destination fees. It’s important to note that the MSRP is the suggested retail price and may differ from the actual price you negotiate and pay. You can usually find details like vehicle weight, battery capacity, final assembly location (listed as “final assembly point”), and the Vehicle Identification Number (VIN) on the vehicle’s window sticker.

Claiming Your 2023 Clean Vehicle Tax Credit

To claim the 2023 Clean Vehicle Tax Credit, you will need to file Form 8936, Clean Vehicle Credits with your annual tax return. You will be required to provide the VIN of your vehicle when filing this form.

Obtaining a Time-of-Sale Report

Upon completing your vehicle purchase, the dealership is obligated to provide you with a paper copy of a time-of-sale report.

Keep this report for your records. It serves as confirmation that the dealer has reported the necessary purchase information to the IRS on the date of sale.
If you do not receive a copy, it’s important to follow up with the dealer and consult resources like the step-by-step guide on claiming the clean vehicle tax credit to ensure proper procedures are followed.

Filing Form 8936 with Your Tax Return

Regardless of whether you transferred the credit at the time of purchase or plan to claim it when filing your taxes, you must complete and submit Form 8936 with your tax return for the year in which you took delivery of the vehicle. For any questions or concerns about the process, the step-by-step guide offers further assistance.

Related Resources

For more information on clean vehicle credits and related topics, you can explore these resources:

By understanding the 2023 Clean Vehicle Tax Credit, you can make informed decisions about purchasing a new EV or FCV and potentially save a significant amount on your taxes while contributing to a cleaner environment.