The US federal electric vehicle (EV) tax credit, which is now known as the clean vehicle tax credit, has been modified and expanded by the Inflation Reduction Act (IRA) of 2022.
The legislation was signed into law by US President Biden in August 2022 and aims to make EVs more accessible for more people as part of sweeping climate action. A part of the Act’s budget of more than $369 million has been allocated to the EV tax credit.
Are you considering purchasing an electric vehicle and wondering how the Clean Vehicle Tax Credit can benefit you? Electrly has gathered the information in this blog to explain the 2023 tax credit and how to claim it on your tax bill.
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Contact ElectrlyWhat Is the Electric Vehicle Tax Credit?
The electric vehicle tax credit is a non-refundable deduction available through the Internal Revenue Service (IRS) to US taxpayers who buy an eligible plug-in EV or fuel cell vehicle.
The changes introduced by the IRA apply to vehicles purchased from 2023 through 2032 and include new manufacturing requirements, income thresholds, and expanded eligibility for certain vehicle types.
Changes to Clean Vehicle Tax Credit For 2023
The changes to the federal EV tax credit under the Inflation Reduction Act came into effect in January 2023, and the IRS released updated guidance on March 31 for the EV battery requirements. Below, we explain what the Act has changed and what this means for US taxpayers.
Credit Extension
The major change the IRA has brought into effect is the extension of the EV tax credit from 2022 for another nine-year period from 2023 until December 31, 2032. It is important to note that taxpayers can only claim the credit once per vehicle.
Manufacturing cap removed
Under the previous EV tax credit rules, vehicles from manufacturers with sales of more than 200,000 units were disqualified from the tax credit. This made some popular electric vehicles ineligible for the tax credit. However, starting in 2023, this cap has been lifted.
Used car eligibility
Used EVs were previously ineligible for the tax credit, but the updated rules now allow for the purchase of used plug-in electric or fuel cell vehicles that are at least two years old. However, there are still some requirements to qualify for the tax credit, including:
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- Only the first transfer of the vehicle to a buyer qualifies for the tax credit.
- Owners can only claim the credit once in three years.
- The buyer must purchase the used vehicle from a licensed dealer and the vehicle identification number (VIN) must be reported on their tax return.
Vehicle price cap
There is a cap on the purchase price for a vehicle to be eligible. Vans, SUVs, and pickup trucks must have an MSRP (manufacturer's suggested retail price) of $80,000 or less, while other vehicles, such as passenger cars and sedans, must have a price of $55,000 or less. The cap for used vehicles is $25,000.
The MSRP for new vehicles is defined by the IRS as the base retail price provided by the manufacturer, including any retail price of accessories or other optional equipment included when the vehicle is delivered to the dealer. However, the MSRP does not include taxes or additional dealer fees for the purpose of the EV credit.
Income eligibility
The IRA also specifies limits on the modified adjusted gross income (MAGI) that taxpayers can make to qualify for the EV tax credit, which vary based on tax filing status.
| Tax-Filing Status | Gross Income Limit for New Car Owners | Gross Income Limit for Used Car Owners |
| Married, filing jointly | up to $300,000 | up to $150,000 |
| Head of household | up to $225,000 | up to $112,500 |
| Single or married, filing separately | up to $150,000 | up to $75,000 |
Taxpayers can use their MAGI from the year they take delivery of the car or the previous year, so if their income exceeds the limit in one year but was below in the other year, they may still qualify.
Final assembly requirement
According to updated EV tax credit rules, the final assembly of eligible vehicles must take place in North America.
Battery and sourcing requirements
The new EV tax credit, which can be worth up to $7,500, is split across two requirements regarding the vehicle battery – production requirements and sourcing requirements. Each requirement contributes half of the credit, with a maximum of $3,750 for each.
Battery production requirement
Part of the vehicle battery must be manufactured or assembled within North America. The percentage threshold increases each year until it reaches 100% in 2029:
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- 2023 – 50%
- 2024 – 60%
- 2025 – 60%
- 2026 – 70%
- 2027 – 80%
- 2028 – 90%
- 2029-2032 – 100%
Critical minerals requirement
A certain percentage of the critical minerals in the vehicle battery must be extracted or processed within the US, or a country with whom the US has a free-trade agreement. The percentage increases each year up to 80%:
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- 2023 – 40%
- 2024 – 50%
- 2025 – 60%
- 2026 – 70%
- 2027-2032 – 80%
Starting in 2024, eligible vehicles cannot contain battery parts sourced from a foreign country of concern, such as China. And beginning in 2025, eligible vehicles cannot contain any critical minerals sourced from a foreign country of concern.
The critical minerals and battery production requirements do not apply to vehicles purchased and delivered before April 18, 2023. The credit was instead calculated as $2,500 for batteries with a capacity of at least 7 kilowatt hours (kWh), with an additional amount of up to $5,000 for additional kilowatt hours above 7kWh.
Point-of-sale credit transfer
From 2024, taxpayers will have the option to transfer the EV tax credit to the dealer at the point of sale to reduce the purchase price of the vehicle, instead of waiting to claim the credit on their tax return. This aims to incentivize drivers who may want to buy an EV but have been put off by high prices.
Which EVs Qualify for the 2023 Clean Vehicle Tax Credit?
Due to the North American assembly requirement and cap on MSRPs, several popular EV models are ineligible for the EV tax credit. To determine if your EV is eligible for the new tax credit, we recommend visiting fueleconomy.gov for more information.
By visiting Fueleconomy.gov, you can confirm if your EV meets the necessary requirements for the tax credit, which can help you make an informed decision and potentially save thousands of dollars on your EV purchase.
Additionally, you can utilize our EV tax credit calculator to obtain an estimate of the amount of credit you may be eligible.
How Do You Claim the EV Tax Credit?
To claim the tax credit for your eligible vehicles, you need to file IRS Form 8936 with your federal income tax return. You will need to enter your electric vehicle’s VIN on the form to qualify.
The EV federal tax credit is non-refundable. You can use it to cut your tax bill to zero, but you will not receive a refund if the value of the credit exceeds your tax bill.
Information You Should Get from Sellers to Claim the EV Tax Credit
You need to receive certain documents from the vehicle seller to be able to receive the tax credit. Sellers must provide a report containing certain information about the EV by the vehicle purchase date:
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- Seller’s name and taxpayer identification number (TIN)
- Taxpayer’s name and TIN
- Date of sale
- Vehicle sales price
- Verification of the vehicle’s maximum tax credit eligibility
- Vehicle identification number (VIN)
- Vehicle’s battery capacity
- Verification that the taxpayer is the vehicle’s original user
- Statement of declaration from the seller under penalty of perjury
FAQs
Does the electric vehicle tax credit apply when I order the vehicle or when I receive it?
You claim the new clean vehicle credit in the tax year that you take delivery of the vehicle.
Will vehicles produced by manufacturers with sales of more than 200,000 units be eligible for the clean vehicle tax credit in 2023?
The previous limit on manufacturer sale volumes no longer applies as of January 1, 2023, so vehicles manufactured with sales of more than 200,000 units, such as Tesla and GM, are now eligible for the clean vehicle tax credit.
When I buy a clean vehicle, what benefits do I get besides a tax credit?
In addition to the federal clean vehicle tax credit, you may also be eligible to receive state and local electric car incentives and rebates.
For example, California’s Clean Air Vehicle program provides certain EVs with access to carpool lanes and taxpayers in New Yorkers can be eligible for a state-level rebate of up to $2,000 in addition to the federal EV credit.
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