Clean Cars and Your Tax Bill

You may qualify for a credit of up to $7,500 under Internal Revenue Code Section 30D if you buy a new, qualified plug-in or fuel cell electric vehicle. The Inflation Reduction Act of 2022 changed the rules for this credit for vehicles purchased from 2023 to 2032.

Thus, there are a lot of I’s to dot and T’s to cross. To qualify, you must:

• Buy it for your own use, not for resale.
• Use it primarily in the U.S.

In addition, your modified adjusted gross income may not 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 took delivery of the vehicle or the year before, whichever is lower. If your modified AGI is below the threshold in one of the two years, you can claim the credit. Note that the credit is nonrefundable, so you can’t get back more on the credit than you owe in taxes. And you can’t apply any excess credit to future tax years.

When did you buy it?

To make the calculations even more complicated, the IRS has made some subtle but important changes to the program based on when you buy or bought your qualified vehicle.

For vehicles placed in service from Jan. 1 to 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.

In general, the IRS explains that the minimum credit will be $3,751 ($2,500 + three times $417) for a vehicle with a minimum of 7 kilowatt hours of battery capacity.

For vehicles placed in service from April 18, 2023, the rules are a little different.

Vehicles will have to meet all the same criteria listed above plus new critical mineral and battery component requirements for a credit of 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 the credit.

What vehicles are eligible?

To qualify, a 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:
  • FCEVs, however, do not need to be made by a qualified manufacturer to be eligible. See Rev. Proc. 2022-42 for more detailed guidance.
• Undergo final assembly in North America.
• Meet the critical mineral and battery component requirements (as of April 18, 2023).

You must buy the vehicle new, and sellers are required to report your name and Taxpayer Identification Number to the IRS for you to be eligible to claim the credit.

There are also price rules. The vehicle’s manufacturer’s suggested retail price cannot exceed:

• $80,000 for vans, sport utility vehicles and pickup trucks.
• $55,000 for other vehicles.

Other conditions may apply. With all these rules, you will need to work with both your car dealer and tax professional before you can start thinking about spending that $7,500.