Clean Vehicle Tax Credits for 2023 and Beyond
This article provides details on the three credits for electric vehicles and fuel cell vehicles that are included in the Inflation Reduction Act that became law in August of 2022 and go into effect in 2023.
New Electric Vehicle Tax Credit
Tax Credit for Used Electric Vehicles
Commercial Clean Vehicle Tax Credit
New Electric Vehicle Tax Credit
The electric vehicle tax credit, or EV credit, is a nonrefundable tax credit that is available for tax years 2023 – 2032. The credit is available to taxpayers who buy qualifying clean or electric vehicles.
New Clean Vehicle Tax Credit Requirements
The full $7,500 tax credit is available for fuel cell vehicles that meet the requirements under IRC 30B(b)(3). The basic requirement is that the vehicle must be propelled by power derived from 1 or more cells which convert chemical energy directly into electricity by combining oxygen with hydrogen fuel which is stored on board the vehicle in any form.
- Credit is not allowed if the taxpayer’s current year or preceding year’s modified AGI exceeds $300,000 for MFJ, $225,000 for Head of Household, and $150,000 for all other filers.
- Credit is allowed for vehicles that have a manufacturer’s suggested retail price of no more than $80,000 for vans, SUVs, or pickup trucks and $55,000 for all other vehicles.
- Credit can be claimed on one vehicle per year.
- The qualifying clean vehicle must be new, been purchased for the taxpayer’s own use (not for resale), and it must be used primarily in the U.S.
- To be an eligible clean vehicle, the final assembly of the vehicle must have been in North America and weigh less than $14,000 pounds.
- Clean vehicles include plug-in electric vehicles with a battery capacity of at least 7 kilowatt hours and fuel cell vehicles.
- Beginning in 2024, an electric vehicle will not qualify for the credit if any of the vehicle’s battery components were manufactured or assembled by a foreign entity of concern.
- Beginning in 2025, an electric vehicle will not qualify for the credit if the vehicle’s battery contains critical minerals that were extracted, processed, or recycled by a foreign entity of concern.
- Taxpayers who purchase a qualifying clean vehicle are eligible for up to a $7,500 nonrefundable tax credit.
- For electric vehicles, the credit is broken down into two parts:
- $3,750 for meeting the critical minerals requirement
- $3,750 for meeting the battery components requirement
What are the Critical Minerals Requirements for EVs?
The vehicle’s battery must contain a threshold percentage of critical minerals that were extracted or processed in a country with which the US has a free trade agreement or recycled in North America as follows:
- 40% – 2023
- 50% – 2024
- 60% – 2025
- 70% – 2026
- 80% – 2027 and later
What are the Battery Components Requirements for EVs?
To meet this requirement, the vehicle’s battery components must meet a percentage threshold for manufacturing or assembly in North America as follows:
- 2023: 50%
- 2024 and 2025: 60%
- 2026: 70%
- 2027: 80%
- 2028: 90%
- After 2028: 100%
For more details, see the following on the IRS website:
- Credits for New Clean Vehicles Purchased in 2023 or after
- Manufacturers and Models for New Qualified Clean Vehicles Purchased in 2023 or after – Lists vehicles that are currently eligible for the credit
- FAQs About the Eligibility Requirements for the New Clean Vehicle Credit
- FAQs About the Income and Price Limitations for the New Clean Vehicle Credit
- FAQs About When the New Eligibility Requirements Apply to the New Clean Vehicle Credit
- IRS Fact Sheet FS-2023-04 (Dated February 3, 2023): IRS updates frequently asked questions related to new, previously owned and qualified clean vehicle credits
Tax Credit for Used Electric Vehicles
The credit for previously owned clean vehicles, or used electric vehicles, is a nonrefundable credit available to taxpayers who purchase a used qualified clean vehicle for years 2023 – 2032.
The tax credit for used EVs is 30% of the vehicle’s purchase price, up to a maximum of $4,000.
Used EV Tax Credit Requirements
- Credit is not allowed if the taxpayer’s current or preceding year’s modified AGI is $150,000 for MFJ, $112,500 for Head of Household, and $75,000 for all other filers.
- Credit is allowed for vehicles with a sales price of $25,000 or less with a model year that is at least two years earlier than the calendar year in which the vehicle is sold.
- Credit can only be claimed for vehicles sold by a dealer and on the first transfer of a qualifying vehicle.
- Credit can be claimed once every three years.
For more details, see the following pages on the IRS website:
- Used Clean Vehicle Credit
- FAQs About Claiming the Previously-Owned Clean Vehicle Credit
- FAQs About Eligibility Rules for the Previously-Owned Clean Vehicle Credit
- FAQs About the Income and Price Limitations for the Previously-Owned Clean Vehicle Credit
Commercial Clean Vehicle Tax Credit
The commercial clean vehicle tax credit, or commercial electric vehicle credit, is available for taxpayers who purchase qualified commercial clean vehicles for tax years 2023 – 2032.
What is the Commercial Clean Vehicle Tax Credit?
Businesses and tax-exempt organizations qualify for the commercial clean vehicle tax credit, also known as the commercial electric vehicle tax credit.
- The credit is the lesser of:
- 15% of the vehicle’s purchase price for hybrid electric vehicles
- 30% of the vehicle’s purchase price for electric or fuel cell vehicles
- The incremental cost of the vehicle relative to an equivalent internal combustion engine vehicle
- Credit limit is $7,500 for vehicles weighing less than 14,000 pounds (Class 1 – 3) or $40,000 for vehicles 14,000 pounds or more (Class 4 and above).
Commercial Electric Vehicle Tax Credit Requirements
- Qualified vehicles must be new, used in the business, made by a qualified manufacturer, and used primarily in the U.S.
- Eligible electric vehicles must have a battery capacity of not less than 15 kilowatt hours (7 kilowatts for vehicles weighing less than 14,000 pounds) and be charged by an external source of electricity.
- Eligible fuel cell vehicles are those that meet the requirements under IRC 30B(b)(3)(A) and (B)
- To be eligible a vehicle must be made by a qualified manufacturer who has a written agreement with and provide periodic reports to Treasury.
- This credit cannot be combined with the Clean Vehicle Tax Credit.
For more details, see the following pages on the IRS website:
CrossLink Professional Tax Software
CrossLink is the industry’s best professional tax software solution for high-volume tax businesses. Built based on the needs of busy tax offices and mobile tax preparers that specialize in providing their taxpayer clients with fast and accurate tax returns, CrossLink has been a trusted software solution since 1989. CrossLink’s in-depth tax calculations, advanced technological features, and paperless solutions allow you to prepare the most complicated tax returns with confidence and ease while providing your customers an unparalleled experience.