Purchasing a Vehicle New can be a significant investment, and understanding potential tax benefits is crucial. If you’re considering a new plug-in electric vehicle (EV) or fuel cell vehicle (FCV), you might be eligible for the Clean Vehicle Tax Credit. This incentive, offered under Internal Revenue Code Section 30D, can significantly reduce the overall cost of your vehicle new purchase. Enacted through the Inflation Reduction Act of 2022, these updated rules apply to vehicles bought from 2023 through 2032.
This credit is designed to encourage the adoption of clean energy vehicles by both individuals and businesses in the United States. However, to qualify for this credit on your vehicle new, both you and the vehicle must meet specific requirements. Let’s delve into the details of who qualifies and what vehicles are eligible.
Who is Eligible for the Clean Vehicle Credit?
The Clean Vehicle Tax Credit is available to individuals and businesses purchasing a vehicle new. To be eligible as a buyer, you must meet the following criteria:
- Purchase for Personal Use: You must buy the vehicle new for your own use and not for resale purposes.
- Primarily Use in the U.S.: The vehicle new must be used primarily within the United States.
- Income Limitations: Your modified Adjusted Gross Income (AGI) must not exceed certain thresholds. These thresholds are:
- $300,000 for married couples filing jointly or surviving spouses
- $225,000 for heads of households
- $150,000 for all other filing statuses
You can use your modified AGI from either the year you take delivery of the vehicle new or the preceding year, whichever is lower. Meeting the AGI threshold in just one of these two years is sufficient to qualify for the credit. It’s also important to note that this tax credit is nonrefundable if you choose to claim it directly on your tax return. This means the credit amount cannot exceed your tax liability, and any unused portion cannot be carried forward to future tax years.
Credit Amounts for Your Vehicle New
The amount of the Clean Vehicle Tax Credit varies based on when you placed the vehicle new in service (delivery date), regardless of the purchase date.
Vehicles Placed in Service from January 1 to April 17, 2023:
For vehicle new deliveries within this period, the credit calculation was based on battery capacity:
- Base amount: $2,500
- Additional $417 for vehicles with at least 7 kilowatt-hours (kWh) of battery capacity
- Further $417 for each kWh of battery capacity exceeding 5 kWh
- Maximum total credit: $7,500
Generally, the minimum credit for a vehicle new with a 7 kWh battery was $3,751.
Vehicles Placed in Service on or After April 18, 2023:
For any vehicle new placed in service after April 17, 2023, the credit calculation includes new requirements related to critical minerals and battery components, in addition to the criteria mentioned above. The credit can be:
- $3,750 if the vehicle new meets only the critical minerals requirement.
- $3,750 if the vehicle new meets only the battery components requirement.
- $7,500 if the vehicle new satisfies both requirements.
A vehicle new that fails to meet either the critical minerals or battery components requirements is not eligible for any credit.
What Makes a Vehicle New Qualify?
To be considered a qualified vehicle new for the tax credit, it must meet several technical and manufacturing criteria:
- Battery Capacity: A minimum battery capacity of 7 kWh is required.
- Gross Vehicle Weight Rating (GVWR): The vehicle new must have a GVWR of less than 14,000 pounds.
- Qualified Manufacturer: It must be manufactured by a “qualified manufacturer,” a detail typically handled by the automakers.
- North American Assembly: Final assembly must occur in North America. This is a key factor, and you can usually find the final assembly point on the vehicle’s window sticker.
- Critical Mineral and Battery Component Requirements: As of April 18, 2023, the vehicle new must also meet specific requirements for critical minerals sourcing and battery component manufacturing to qualify for the full or partial credit.
Additionally, the sale of the vehicle new must meet certain conditions:
- Original Purchase: You must be the original purchaser of the vehicle new.
- Seller Reporting: The seller is mandated to provide you with all necessary qualification information at the time of sale and report the same information to the IRS. Failure of the seller to comply with these reporting requirements can disqualify your vehicle new for the credit.
Finally, the manufacturer’s suggested retail price (MSRP) of the vehicle new cannot exceed certain limits:
- $80,000 for vans, sport utility vehicles, and pickup trucks.
- $55,000 for all other types of vehicle new.
MSRP includes manufacturer-installed options, accessories, and trim but excludes destination fees. You can verify the weight, battery capacity, final assembly location (“final assembly point”), and VIN on the window sticker of the vehicle new.
Claiming Your Clean Vehicle Tax Credit
To claim the Clean Vehicle Tax Credit for your vehicle new, you will need to file Form 8936, Clean Vehicle Credits, with your annual tax return. This form requires you to include the vehicle new’s Vehicle Identification Number (VIN).
Time-of-Sale Report
Upon purchasing your vehicle new, the dealer should provide you with a paper copy of a time-of-sale report. This document is crucial as it confirms that the dealer has reported the necessary information to the IRS. Keep this report for your records. If you do not receive this report, it is advisable to follow up with the dealer and consult resources on how to claim the Clean Vehicle Tax Credit to ensure compliance.
Filing Form 8936
Whether you transferred the credit at the point of sale (if applicable, starting in 2024) or are claiming it directly on your tax return, filing Form 8936 is mandatory. This should be done when you file your tax return for the year in which you took delivery of the vehicle new. For detailed guidance and step-by-step instructions, refer to resources on claiming the clean vehicle tax credit provided by the IRS.
By understanding these guidelines, purchasers of a vehicle new can navigate the Clean Vehicle Tax Credit process effectively and potentially benefit from significant savings.
