You’re sitting in your car, waiting in line at the gas station, watching the gas price tick up and up.
You start to wonder if there’s a better way.
That’s when you start hearing more and more about electric vehicles (EVs) – cars that run on electricity instead of gas, saving you money on fuel costs and reducing your carbon footprint.
But the high sticker price of EVs can be a turnoff for many buyers.
Luckily, the federal government has been incentivizing EV adoption through tax credits.
And now, with the Inflation Reduction Act (IRA) passed in 2022, the federal tax credit for electric vehicles has been extended until December 2032.
In this blog post, we’ll take you through all the updated EV tax credit details in 2023, including the types of electric vehicles that qualify, other requirements, income limits, and how to claim the credit.
So buckle up and get ready to learn everything about EV tax credits this year!
Key Takeaways
- The federal EV tax credit has been extended until December 2032, with updated requirements such as battery and source criteria, income limits, and vehicle price caps.
- The Inflation Reduction Act has changed the EV tax credit, including increasing the maximum credit for new EVs to $7,500 and expanding the credit for used EVs to a maximum of $4,000.
- To claim the EV tax credit, you must file Form 8936 with your 2022 tax return and have specific documents from the seller, including a report with vehicle and sales information, VIN, and battery capacity.
What is Electric Vehicle Tax Credit?
EV Tax Credit is a federal incentive encouraging electric vehicle adoption by making it more affordable for consumers.
With the growing concern about climate change and the need to reduce our dependence on fossil fuels, the federal government has been incentivizing clean energy through tax credits.
The EV tax credit was born to promote EV use and reduce carbon emissions.
The Inflation Reduction Act passed in 2022 extended the tax credit until December 2032, signaling the government’s continued commitment to reducing greenhouse gas emissions and promoting clean energy.
Qualifying Electric Vehicle for Tax Credits
Electric vehicles must meet specific criteria to qualify for the federal EV tax credit.
First, the vehicle must be a qualifying plug-in hybrid or fuel-cell electric vehicle. Fuel cell vehicles must be propelled by an electric motor that draws power from a battery with at least 7kW hours of capacity.
Second, the vehicle must have a gross weight rating (GVWR) of less than 14,000 pounds.
Third, the vehicle must be used primarily in the United States, and you must own it.
Other Requirements in Battery and Source
The Inflation Reduction Act has specific requirements for EV batteries and critical minerals:
Battery Requirement
To receive the battery portion of the EV tax credit, up to $3,750, your EV’s battery must meet a specific requirement.
Starting in 2023, at least 50% of the battery must be assembled or made in North America, which increases yearly until it reaches 100% by 2029.
Critical Minerals Requirement
To get the remaining $3,750 of the tax credit, your car’s battery must contain a specific percentage of critical minerals extracted or processed in the U.S. or a country with a free-trade agreement with the U.S.
Starting in 2023, this percentage threshold is 40%. Still, it goes up yearly until it reaches 80% by 2027.
And here’s a heads up – starting in 2024, your EV has limitations in battery parts from a foreign country of concern, like China.
And from 2025 onward, your car has limitations in any critical minerals sourced from those countries.
Vehicle Price Caps
The EV tax credit can make buying an EV more affordable, but there are some limits to keep in mind.
Manufacturer’s Suggested Retail Price (MSRP) above $80,000 makes SUVs, vans, and pickup trucks ineligible for the EV tax credit.
But you do not need to worry – there are still plenty of options that do qualify!
For a new EV to be eligible for the full tax credit amount of $7,500, the MSRP must be, at most, $55,000.
And if you’re considering a used EV, it must be at least two years old and cost at most $25,000 to qualify.
But there’s one more thing to remember – to be considered “used” or “previously owned” for the EV tax credit, the model year of which is at least 2 years.
So if you’re on the hunt for an EV that qualifies for the tax credit, keep these price limits in mind as you browse your options.
Income Limits For Clean Vehicle Credit
Modified Adjusted Gross Income (MAGI) determines the income limits for the EV tax credit, which differ depending on whether the vehicle is new or used.
For new electric cars purchased in 2023, the following income limits apply:
New Cars
| Filing Status | Modified Adjusted Gross Income |
| Single | $150,000 |
| Married Filing Jointly | $300,000 |
| Married Filing Separately | $150,000 |
| Head of Household | $225,000 |
Used Car
| Filing Status | Modified Adjusted Gross Income |
| Single | $75,000 |
| Married Filing Jointly | $150,000 |
| Married Filing Separately | $75,000 |
| Head of Household | $112,500 |
How Much Can I Receive From EV Tax Credit in 2023?
If you’re in the market for an EV, you’ll be pleased to know that the Inflation Reduction Act has made some changes to the EV tax credit.
One of the most significant changes is that the maximum credit for new EVs has been increased to $7,500.
Additionally, the credit for used EVs has been expanded to the lesser of $4,000, limited to 30% of the sale price.
These changes mean that you can save a substantial amount of money on your fuel cell vehicle purchase.
How Can You Claim the EV Tax Credit for A Car Purchased in 2022?
If you bought an EV in 2022, you might wonder how to get clean vehicle credit. Luckily, the Inflation Reduction Act has some good news for you.
If you had a written, binding sales contract from 2022 to purchase an EV that will be placed in service (which means “delivered” for IRS purposes) on or after the IRA became effective, you can still claim the old EV tax credit.
That means if your EV is otherwise eligible for the old tax credit, you can claim it under the rules that applied before the Inflation Reduction Act became law.
And here’s a bonus – the North American final assembly requirement only applies after the IRA effective date.
So if you’re the proud owner of a new electric vehicle, remember to check if you’re eligible for the tax credit. It could save you a significant amount of money.
How To Claim the EV Tax Credit in 2023?
To claim the clean vehicle tax credit on a new or used electric car purchased in 2022, you must file Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit, with your 2022 tax return.
Required Documents from Seller
When buying an electric vehicle, there are certain documents you’ll need to claim the EV tax credit on your taxes. Don’t worry – the dealership should provide you with these documents, but it’s always good to double-check before you leave. Here’s a list of the documents you’ll need:
A report from the seller containing specific information about the vehicle. This report should be furnished to you by the date of the vehicle’s purchase and should include the following:
- The seller’s name and taxpayer identification number (TIN).
- Your name and TIN.
- Your Gross Vehicle Weight
- The date of sale and sales price.
- Verification of the maximum tax credit the vehicle is eligible for.
- The clean vehicle’s VIN is on the vehicle’s window sticker or identification number.
- The clean vehicle’s battery capacity.
- Verification that you are the original user of the car.
- A statement of declaration from the seller under penalty of perjury.
With these documents, you can claim the EV tax credits on your taxes and save money on your purchase.
Final Thoughts
The federal tax credit can significantly reduce the purchase price if you’re in the market for a new electric vehicle.
However, it’s essential to understand the requirements for qualifying vehicles, battery and source, income limits, and how to claim the credit.
Remember that the tax credit is subject to change, so stay up-to-date on any updates from the Inflation Reduction Act or the IRS.
To stay informed, subscribe to our blog and receive updates on the latest electric vehicle tax credits and other tax incentives.
Frequently Asked Questions (FAQs)
Is the EV tax credit still available?
Yes, the EV tax credit is still available. The credit has been revamped under the Inflation Reduction Act and increased to a maximum of $7,500
How do I claim an electric vehicle tax credit?
To claim an EV credit, you must file Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit, and your tax return.
