The Inflation Reduction Act of 2022 significantly modified the tax credit available for the purchase of new electric vehicles (IRC section 30D). Now known as the Clean Vehicle Credit (formerly the Plug-In Electric Drive Vehicle Credit), the credit provides incentives for taxpayers purchasing certain electric vehicles assembled in the United States.
The only significant change (the new North America assembly requirement) affects qualified vehicles purchased after August 16, 2022.
Through December 31, 2022, the credit continues to be a $7,500 nonrefundable credit available for the purchase of new vehicles. This credit is comprised of $2,500 plus an amount determined by the battery’s capacity, $417 for a battery with at least five kilowatt hours (kWh) of capacity and an additional $417 for each additional kWh. Since 2010 the U.S. Department of Energy has published a list of all-electric and plug-in hybrid cars and qualifying credit amounts.
There are significant changes to the credit beginning January 1, 2023. The $7,500 nonrefundable credit for new cars has two primary criteria: the source of the battery’s critical minerals, and location where the battery components are manufactured or assembled. Half of the credit, $3,750, is determined by the source of the battery’s critical material, and the other half of the credit, $3,750, is determined by the source of the battery’s components.
To be eligible in 2023:
Final vehicle assembly in North America remains a requirement. Other changes include taxpayer income restrictions, vehicle sales price limitations, and the eligibility of used vehicles (purchased after December 31, 2023). The 200,000-vehicle sales cap is eliminated in 2023, qualifying General Motors and Tesla vehicles if the other criteria is met.
Additional criteria include:
While the critical mineral and battery component requirements gradually increase each year, additional criteria outlined above remain the same for January 1, 2024, through December 31, 2032.
In 2022 and 2023 taxpayers that purchase new, qualifying vehicles for use or lease will complete Form 8936 to claim the nonrefundable New Clean Vehicle Credit. Lessors may pass the credit on to the lessee through reduced lease payments.
The modified Clean Vehicle Credit has several provisions that will restrict eligibility because of the limited number of qualifying electric vehicles on the market. Automakers are expected to make changes to their supply chains and production methods to produce qualifying vehicles.
When considering the purchase of a new electric vehicle it is also important to consider the variety of state incentives that may be available.
Questions about how these changes impact you?
This article is provided for general informational purposes only. It is not legal, accounting or other professional advice, as it does not address any individual facts, circumstances or concerns. Before making personal or business related decisions, please consult with appropriate legal, accounting or other qualified professionals.