The recent Inflation Reduction Act made changes to energy tax credits. Some of the big changes were tax credits for Electric Vehicles (EVs). In our last article we discussed all the new energy tax credits for home improvements (such as solar panels, water heaters, insulation, etc.) In this article we are going over the new EV tax credits for vehicles
EV Tax Credits for 2022
The Inflation Reduction Act was passed on August 16th, 2022. Some of the changes occurred immediately when the bill was passed, and others don’t start until the beginning of 2023. Depending on when you purchased your vehicle in 2022 or are waiting until 2023, the rules are different.
EVs purchased on or before August 16th, 2022
You’re asking yourself, “what if I purchased my vehicle before the deadline?” If you purchased your EV on 8/16/2022 or before, you could still get the EV Tax Credit under the old rules (which means you can get the tax credit for vehicles not on the list.) But as anything with the IRS there are rules:
- You must have a written binding contract on or before 8/16/2022
- You made at least a 5% non-refundable deposit toward the purchase of the vehicle
- If all you did was put yourself on a list with no contract or no deposit, you are out of luck!
EVs purchased after August 16th, 2022
Any EV that is purchased after August 16th, 2022, must be assembled in North America. That is a huge change. Now a lot less automobiles qualify for the change (here’s a list of all qualifying EVs.) Additionally, there is a manufacturer’s cap of 200,000 that is still in effect until the end of 2022. So, it’s best you that you check with your dealer and CPA to make sure that the vehicle you purchased qualifies.
EV Tax Credits for 2023
There are a lot of changes that take effect starting in 2023. They are
- 200,000 manufactuer’s cap is gone
- Income limit on the amount individuals can make
- Cap on the maximum amount an EV can costs
Income limits – starting in 2023, if you make too much money (i.e., whoever congress deems is rich) doesn’t qualify for the credit. If your Adjusted Gross Income (AGI) is over the following, you are out of luck:
| Filing Status | Income Limit |
|---|
| Single | AGI must be less than $150,000 |
| Married filing jointly | AGI must be less than $300,000 |
| Head of Household | AGI must be less than $225,000 |
EV Costs – starting in 2023, there is a price cap on the vehicle you purchased. In other words, if the car is too fancy, you’re out of luck.
| Type of Vehicle | Price Cap |
|---|
| Regular EV | $55,000 or less |
| SUVs, Vans, or Trucks | $80,000 or less |
The IRS is planning on providing a list of which vehicles fall into the categories above. Keep in mind, the price cap is based on the MSPR of the vehicle.
Electric Vehicle (EV) Tax Credit – $7,500
The EV Tax Credit is up to $7,500 for new vehicles and counts for both electric and hybrid vehicles. They also apply for both business and non-business for 2022.
Used Vehicle (EV) Tax Credit – $4,000
Under the old rules, you could not receive a tax credit for used EVs. You only got the benefit if you purchased new ones. Starting in 2023, if you meet certain requirements, you may get up to a $4,000 tax credit.
The rules are similar to other 2023 rules. There are income limits and price caps. First of all, the cost of vehicle cannot be more than $25,000. Here are the income limits for used EVs:
| Filing Status | Income Limit |
|---|
| Single | AGI must be less than $75,000 |
| Married filing jointly | AGI must be less than $150,000 |
| Head of Household | AGI must be less than $112,500 |
All used EVs must cost less than $25,000 to qualify for the $4,000 tax credit.
| Type of Used Vehicle | Price Cap |
|---|
| All used EVs | $25,000 or less |
Conclusion
The most important things to remember when purchasing an EV in 2023 are the EV price cap, your income limit, and that the vehicle and battery were sourced and assembled in North America.