A new year brings with it a fresh set of regulations, rules, and tax changes, including tax credits. Beginning January 1, 2023, the U.S. Treasury Department and the IRS issued details on specific clean vehicle provisions of the federal Inflation Reduction Act. The information supplies consumers may use when considering a new vehicle purchase.
Federal tax credits for electric vehicles are not new. For more than a decade, consumers have found credits of up to $7,500 on certain full electric vehicles as well as on plug-in hybrid electric vehicles. However, those credits were phased out as manufacturer limits were released. For instance, under the previous allotment, Tesla quickly expended its 200,000-vehicle limit. Furthermore, GM and Toyota also reached their limits, while several other manufacturers were on the way to losing theirs. The Inflation Reduction Act includes billions of dollars set aside for EV tax credits.
For 2023, the IRS expanded the tax credit to include consumer-leased vehicles. Although the tax credit is available to consumers and businesses, the leasing provision does not cover the latter. Still, the IRS allows the credit for consumers’ personal use provided the vehicle is used primarily in the United States.
The full $7,500 federal tax credit, however, has income limits. For example, married couples filing jointly with an adjusted gross income (AGI) of no more than $300,000 may claim the full credit. For taxpayers filing as the head of household, the limit is $225,000. As for all other filers, the threshold is $150,000.
The current tax credit provision, though, makes it impossible for select foreign-built models to qualify. Indeed, a key requirement is that the vehicles must undergo final assembly in North America. This means that EVs assembled outside of the United States, Canada, and Mexico would not be eligible for a tax credit.
Qualifying vehicles must also have a battery capacity of at least 7-kilowatt hours and a gross vehicle weight rating of under 14,000 pounds. Eligible vehicles must be made by qualified manufacturers. That list of such manufacturers is found on the IRS website. One exception to the rule covers fuel-cell vehicles – they do not need to be made by qualified manufacturers to be eligible.
Consumers should also pay attention to the manufacturer’s suggested retail price or MSRP. The MSRP cannot exceed $80,000 for pickup trucks, vans, and sport utility vehicles. Further, there is a $55,000 limit on all other vehicles. Keep in mind that the MSRP is not necessarily what you’d pay for a vehicle as that figure is negotiable.
Claiming the Tax Credit
When a consumer purchases a qualified motor vehicle, the dealer notifies the IRS and supplies their TTN. The TTN covers Social Security and business Tax Identification Numbers.
Keep in mind that the federal tax credit does not result in any direct cash disbursement to qualified taxpayers. Instead, the credit is applied to the tax filing, effectively reducing the tax burden. Notably, if the full amount isn’t used, the remaining credit disappears – it does not carry forward.
Learning if a vehicle is eligible for a tax credit seems more complicated this year. That said, manufacturers and dealers should clearly understand which models are eligible and direct consumers accordingly. Finally, if that seems confusing, you aren’t alone, because it is. Fortunately, the EV enthusiast website Electrek maintains a current list. Check out the link in the References section for more information.
Treasury releases additional information on Clean Vehicle Provisions of Inflation Reduction Act. U.S. Department of the Treasury. (2022, December 29). Retrieved December 30, 2022.
Shepardson, D. (2022, December 29). U.S. Treasury says consumer leases can qualify for EV tax credits. Reuters.
(n.d.). Credits for New Clean Vehicles Purchased in 2023 or After. Internal Revenue Service.
Doll, S. (2022, December 28). Here’s every electric vehicle that qualifies for the current and upcoming US federal tax credit. Electrek