Welcome to the World of Electric Vehicle Tax Credits

Welcome to the World of Electric Vehicle Tax Credits

So, first things first, let’s talk about what makes a vehicle “qualified” for the plug-in electric drive motor vehicle credit. A qualifying vehicle is a new, four-wheeled wonder that:

Who and What Qualifies?

  • Weighs less than 14,000 pounds (no elephants here, folks), and
  • Runs mostly on an electric motor powered by a battery with at least four kilowatt hours of capacity, which can be recharged from an external source (like your home or that hip coffee shop down the street).
  • Original purchase price: $200,000 (half for each spouse)

Now, if you’re wondering whether your new electric dream machine qualifies for the credit, you can usually trust the manufacturer’s certification. But there are some other boxes you need to check to claim the credit:

  • You must own the vehicle (sorry, lessees—only the lessor gets the credit),
  • You must own the vehicle (sorry, lessees—only the lessor gets the credit),
  • The vehicle must hit the road during the tax year,
  • You must be the first one to use the vehicle,
  • The vehicle must be made for public streets, roads, and highways (no lunar rovers here),
  • You must acquire the vehicle for personal use or to lease to others (not for resale),
  • The vehicle must be used mostly in the United States, and
  • If purchased on or after August 16, 2022, it must be assembled in North America (thanks, Inflation Reduction Act!).

Claiming the Credit: A How-To Guide

Ready to claim your credit? File Form 8936 and transfer the business portion to Form 3800. Keep in mind that if your vehicle qualifies for the Qualified Plug-In Electric Drive Motor Vehicle Credit (Form 8936), it can’t also claim the Alternative Motor Vehicle Credit.

Impact or Coordination with Other Credits and Depreciation

Don’t forget that the credit affects your vehicle’s depreciable basis, which is reduced by the total credit amount. And if the vehicle no longer qualifies for the credit, you might have to recapture part or all of the credit (cue ominous music).

The Inflation Reduction Act shook things up a bit with the Qualified Plug-In Electric Vehicle Credit, so here’s a quick rundown of the changes:

For Tax Year 2022:

For Tax Year 2023:

  • The Qualified Plug-In Electric Vehicle Credit is now the Clean Vehicle Credit.
  • Credit amount (max $7,500): $3,750 if critical minerals requirement is met, plus $3,750 if battery components requirement is met.
  • No phaseout based on manufacturer sales
  • No credit if your modified AGI is too high or if the vehicle’s MSRP exceeds certain limits
  • Dealerships must furnish a report to you and the IRS
  • The Clean Vehicle Credit also includes vehicles that previously qualified for the Alternative Motor Vehicle Credit.

Now, if you’re looking to buy a new plug-in EV or fuel cell vehicle (FCV) in 2023 or later, you might be eligible for a clean vehicle tax credit. Just make sure you meet the qualifications and remember, the credit is nonrefundable, so it’s a use-it-or-lose-it kind of deal!

To claim the credit, file Form 8936 with your tax return, and don’t forget to include your vehicle’s VIN. And that’s it! You’ve mastered the art of electric vehicle tax credits. Now go enjoy that silent, eco-friendly ride, you savvy taxpayer!

***Disclaimer: This communication is not intended as tax advice, and no tax accountant -client relationship results**

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