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Tax Credits for New Electric Vehicles Purchased In 2023

By: Brian Nichols

If you’re one of the half million Americans who purchased an electric vehicle so far in 2023, you might be eligible for a tax credit.

Background

In response to growing concerns over climate change and increasing carbon emissions, Congress initiated a new program offering tax credits for the purchase of new clean vehicles starting in 2023 under the Inflation Reduction Act. The tax credits are available through 2032.

These credits not only incentivize U.S. consumers and businesses to opt for cleaner transportation alternatives, but also help in driving down the overall cost of these vehicles. The goal is to make the purchase of clean vehicles more accessible and affordable, thereby accelerating their adoption and reducing the dependence on fossil fuel-consuming vehicles. By encouraging the early adoption of clean vehicles, the government hopes to create a strong market demand and spur innovation in the manufacturing of more sustainable and efficient vehicles.

Who Qualifies for the Tax Credit?

If you buy a new, qualified plug-in electric vehicle (EV) or fuel cell electric vehicle (FCV), you might qualify for a tax credit up to $7,500 under Internal Revenue Code Section 30D.

The credit is available to both individuals and businesses.

To qualify for this tax credit, you must:

  • Buy the EV for your own use, not for resale

  • Use the EV primarily in the U.S.

In addition, your modified adjusted gross income (AGI) cannot exceed:

  • $300,000 for married couples filing jointly

  • $225,000 for heads of households

  • $150,000 for all other filers

You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your modified AGI is below the threshold in one of the two years, you can claim the credit.

The credit is nonrefundable, meaning you can't get back more on the credit than you owe in taxes. Neither can you apply any excess credit to future tax years.

How Is the Amount of the Credit Determined?

Regardless of the purchase date, the amount of the credit depends on when you took delivery and placed the vehicle into service.

If your vehicle was placed into service between January 1 and April 17, 2023
  • $2,500 base amount

  • Plus $417 for a vehicle with at least 7 kilowatt hours of battery capacity

  • Plus $417 for each kilowatt hour of battery capacity beyond 5 kilowatt hours

  • Up to $7,500 total

Generally, the minimum credit will be $3,751 ($2,500 + 3 times $417), the credit amount for a vehicle with the minimum kilowatt hours of battery capacity.

If your vehicle was placed into service on April 18, 2023 or after

Vehicles have to meet all the criteria listed above, plus meet new critical mineral and battery component requirements for a credit up to:

  • $3,750 if the vehicle meets the critical minerals requirement only

  • $3,750 if the vehicle meets the battery components requirement only

  • $7,500 if the vehicle meets both

A vehicle that doesn't meet either requirement will not be eligible for a credit.

Which Vehicles Qualify for the Tax Credit?

To qualify for this tax credit, your vehicle must:

  • Have a battery capacity of at least 7 kilowatt hours

  • Have a gross vehicle weight rating of less than 14,000 pounds

  • Be made by a qualified manufacturer (FCVs do not need to be made by a qualified manufacturer to be eligible. You can find more detailed guidance here.)

  • Undergo final assembly in North America

  • Meet critical mineral and battery component requirements (as of April 18, 2023)

Your purchase of the EV qualifies only if you buy the vehicle new. The seller reports required information to you at the time of sale and to the IRS. Note that sellers are required to report your name and taxpayer identification number to the IRS for you to be eligible to claim the credit.

Finally, the vehicle's manufacturer suggested retail price (MSRP) cannot exceed:

  • $80,000 for vans, sport utility vehicles and pickup trucks

  • $55,000 for other vehicles

It's worth noting that some used electric vehicles are eligible for a smaller tax credit. Used EVs have a separate tax credit of up to $4,000 or 30% of the price of the vehicle, whichever is less. For the purpose of the tax credit, the IRS defines “used” as previously owned clean vehicles that are at least two years old.

How to Claim the Tax Credit

To claim the credit, file Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit with your tax return. You will need to provide your vehicle's VIN.

Need Help?

Contact us here or call 800.899.4623.

Published August 23, 2023

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