Despite the predictions and media attention, electric vehicles (EV) accounted for only 5.7% of all automobiles purchased in the United States in 2022.
Globally, EV sales rose to 14% in 2022.
The persistently high cost of new EVs has made purchasing one out of reach for most consumers. However, the U.S. Tax Code provides a subsidy and tax incentive for those willing to take the plunge.
New EVs or fuel cell vehicles purchased in 2023 may qualify for a tax credit of up to $7,500. However, the Inflation Reduction Act of 2022 placed new requirements on qualifying vehicles purchased between 2023 and 2032.
WHICH VEHICLES QUALIFY?
Vehicles will have to meet 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
Critical Minerals
To be eligible for the full electric vehicle and fuel cell electric vehicle tax credit a percentage of the minerals must be extracted or processed in the United States or by a U.S. free-trade agreement partner or recycled in North America and must meet or exceed the following thresholds:
Battery Component
To be eligible for the full credit the percentage of the battery components that are manufactured or assembled in North America must meet or exceed:
LIMIT ON VEHICLE PURCHASE PRICE
In addition, the vehicle’s manufacturer suggested retail price (MSRP) can’t exceed:
- $80,000 for vans, sport utility vehicles and pickup trucks
- $55,000 for other vehicles
WHO QUALIFIES FOR THE CREDIT?
In order to qualify for the credit, your modified adjusted gross income (AGI) may not exceed:
- $300,000 for married couples filing jointly
- $225,000 for heads of households
- $150,000 for all other filers
OTHER REQUIREMENTS?
You must:
- Buy the vehicle for your own use and not for resale
- Use the vehicle primarily in the U.S.
There are other requirements for the credits for new clean vehicles purchased in 2023 or after that can be found on the IRS website. The IRS has also issued a fact sheet about new, previously owned and qualified commercial clean vehicle credits in a question-and-answer format.
For most consumers, the easiest way to see whether a vehicle qualifies for the credit is to visit the government’s fuel economy website.
HOW TO CLAIM THE CREDIT
Taxpayers will claim the credit on Form 8936 when they file their federal income tax return.
