How to Take Advantage of the New Electric Vehicle Tax Credit
EV Tax Credit 2023

Date

In the market for a new (or used) car? Under the recently revised EV tax credit, buying a new electric vehicle could yield a tax credit of up to $7,500, while used EV car buyers could nab a tax credit of up to $4,000.

Why the generous tax break for electric vehicle purchases? The federal government has formally committed to achieving zero carbon emissions by 2045. And policymakers believe replacing traditional gas-powered automobiles with electric cars is critical to realizing their admitted bold plan.

In an effort to facilitate this agenda, the federal government included a sizable EV tax credit in the Inflation Reduction Act of 2022 (which extends to EV purchases made through 2032).

So, how does the EV tax credit work, who qualifies, and which vehicles are eligible? Here’s what you need to know.

How Does The EV Tax Credit Work?

Income Level — If you’re hoping to receive the EV tax credit, your annual household income must fall below a certain level. The chart below outlines the income requirements:

Tax-filing status

Modified adjusted gross income

Single

$150,000.

Head of household

$225,000.

Married, filing jointly

$300,000.

Married, filing separately

$150,000.

Price Cap — Vehicles over a specific price point are not eligible for the EV credit. The purchase price is capped at $55,000 for sedans and similar vehicles. For vans, SUVs, and pickup trucks, the cap is $80. And for used cars, the cap is $25,000.

Assembly Location — To qualify for the EV credit, the vehicle’s “final assembly” must occur within North America. This factor can be confirmed by referencing the VIN (Vehicle Identification Number).

Used Cars Now Qualify! With Caveats… Used cars were not previously eligible for EV tax credits but now qualify under the new legislation, albeit with some limitations:

The vehicle must be plug-in electric or fuel cell with a minimum 7-kilowatt hours battery life

Only the first ownership transfer qualifies

$25,000 is the maximum purchase price

“Used Cars” less than two years old do not qualify

The car cannot weigh more than 14,000 pounds

Income level is also a limitation in qualifying for the EV tax credit on used cars. The chart below outlines the income requirements:

Tax-filing status

Modified adjusted gross income

Single

$75,000.

Head of household

$112,500.

Married, filing jointly

$150,000.

Married, filing separately

$75,000.

How is The Electric Vehicle Tax Credit Calculated?

While the new and used EV tax credits max out at $7,500 + $4,000 respectively, several qualifying factors impact the calculations.

To begin with, to claim the credit in 2023, owners must have taken delivery of their vehicle on or after April 18, 2023.

Additionally, the credit is divided into two parts, battering and sourcing. And to qualify for the full credit, your purchase must satisfy both requirements.

The battery credit alone is worth $3,750, but a specific portion battery must be assembled or produced in North America to be eligible. The percentage breakdown is listed below:

2023: 50%

2024: 60%

2025: 60%

2026: 70%

2027: 80%

2028: 90%

2029 through 2032: 100%

The “critical minerals requirement” also dictates that a portion of the car’s battery must include minerals mined in the United States or in a free-trade partner country. The percentage breakdown is listed below:

2023: 40%

2024: 50%

2025: 60%

2026: 70%

2027 through 2032: 80%

After 2024, EV batteries cannot be assembled with parts from “countries of concern,” which includes China. And after 2025, this rule applies to critical minerals as well.

Which Electric Vehicles Will Qualify For The EV Tax Credit?

Given the specificity of battery and sourcing requirements, and the ongoing evolution of manufacturing, the makes and models of qualifying electric vehicles will definitely change over time. And car buyers must investigate changing specifications when considering future EV purchases.

But as of July 2023, here’s a list of qualifying electric vehicles:

Car Make and Model

Year

Vehicle Type

Tax Credit Amount

MSRP Limit

BMW

X5 xDrive50e

2024.

PHEV.

$3,750.

$80,000.

Cadillac

Lyriq

2003–2024.

EV.

$7,500.

$80,000.

Chevrolet

Bolt Bolt EUV

2022–2023.

EV.

$7,500.

$55,000.

Blazer

2024.

EV.

$7,500.

$80,000.

Equinox

2024.

EV.

$7,500.

$80,000.

Silverado

2024.

EV.

$7,500.

$80,000.

Chrysler

Pacifica

2022–2023.

PHEV.

$7,500.

$80,000.

Ford

Escape

2022–2023.

PHEV.

$3,750.

$80,000.

E-Transit

2022–2023.

EV.

$3,750.

$80,000.

F-150 Lightning (standard and extended range battery)

2022–2023.

EV.

$7,500.

$80,000.

Mustang Mach-E (standard and extended range battery)

2022–2023.

EV.

$3,750.

$80,000.

Jeep

Grand Cherokee PHEV 4xe

2022–2023.

PHEV.

$3,750.

$80,000.

Wrangler PHEV 4xe

2022–2023.

PHEV.

$3,750.

$80,000.

Lincoln

Aviator Grand Touring

2022–2023.

PHEV.

$7,500.

$80,000.

Corsair Grand Touring

2022–2023.

PHEV.

$3,750.

$80,000.

Rivian

R1S R1T

2023.

EV.

$3,750.

$80,000.

Tesla

Model 3 Standard Range RWD

2022–2023.

EV.

$7,500.

$55,000.

Model 3 Performance

2022–2023.

EV.

$7,500.

$55,000.

Model Y Performance Model Y AWD Model Y Long Range AWD

2022-2023.

EV.

$7,500.

$80,000.

Model 3 Long-Range AWD

2023.

EV.

$7,500.

$55,000.

Volkswagen

ID.4 Pro. ID.4 Pro S ID.4 Pro S Plus

ID.4 AWD Pro ID.4 AWD Pro S ID.4 AWD Pro S Plus

ID.4 S ID.4 Standard

2023.

EV.

$7,500.

$80,000.

Any Tax Credits For EV Purchases Made in 2022

While the most valuable tax breaks apply to EV purchases made on or after April 18, 2023, credits are still available on cars bought in 2022. The credit values range from $2,000 to $7,500. And here’s a rundown of the qualifying factors:

After a manufacturer sells 200,000 qualifying vehicles, the credit disappears (Tesla and GM are now ineligible)

New cars only, used + leased cars don’t qualify

14,000 pounds is the max weight limit

The credit does not translate to a refund, thus zeroing out your tax bill is the maximum reduction allowed

How is The EV Tax Credit Claimed?

File Form 8936 when submitting your federal income tax return.

Additional EV Rebates + Incentives

Many states, California included, offer additional EV purchase incentives. In particular, California’s Clean Air Vehicle program gives carpool lane access to select electric vehicles.

Wondering if You Qualify For an EV Tax Credit?

There are a plethora of factors to consider with the new EV tax credit rules and regulations. And deciphering new legislation is usually pretty tricky.

But if you have recently purchased an electric vehicle or are planning to do so this year and have questions about potential tax credits — Get in touch for a FREE consultation!

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