Will my new car qualify for the New Clean Vehicle Credit?
You must be excited. You are either looking for a new vehicle or you have just purchased one. With the passing of the Inflation Reduction Act of 2022 on August 16, 2022, there have been changes to the tax rules around which electric vehicles qualify for a tax credit. The decision tree below will help guide you through the new law and the information below the decision tree drills down into the specifics of the new law.
Here is a link National Highway Traffic Safety Administration website that allows you to enter the vehicle VIN to determine eligibility: https://www.nhtsa.gov/vin-decoder
Summary of the new law
For any vehicles purchased between August 16, 2022, and December 31, 2022, the rules of the old “New Qualified Plug-in Electric Drive Motor Vehicle” credit rules stay in effect except for the fact that the vehicles need to have a final assembly in the Unites States.
For any vehicles placed in service after December 31, 2022, and by December 31, 2032, the new rules of the New Clean Vehicle Credit will be in effect. The new tax law can be summarized as follows:
- The credit is a maximum of $7,500 per vehicle.
- A qualified vehicle meets the following requirements:
- Final assembly of the vehicle must occur in the U.S.
- Must have a minimum battery capacity of seven kilowatt hours
- The dealer/seller must provide the buyer and the IRS with a report that includes:
- Name and identification number of the buyer
- VIN of the vehicle
- Battery capacity of the vehicle
- Verification that the buyer is the original purchaser of the vehicle
- Maximum credit allowed for the vehicle
- The credit only applies to vehicles with a manufacturer’s suggested retail price below the following thresholds:
- Vans, sport utility vehicles, and pick-up trucks less than $80,000
- All other cars less than $55,000
- As it relates to the buyer claiming the credit, they must have modified adjusted gross income less than the following:
- Married filing joint, or surviving spouse – less than $300,000
- Head of household – less than $225,000
- Single – less than $150,000
The buyer also has the right to transfer the tax credit to the seller at the time of the purchase. If the buyer of the vehicle transfers the right to the credit back to the seller, the buyer must still comply with the income thresholds:
For example, when you are purchasing a new vehicle, you will be able to transfer the credit to the seller and they can pass that credit on to you as a reduction in the purchase price of the vehicle. If you are married filing joint and your income modified gross income is greater than $300,000 then you will be required to report the credit (reduction in purchase price) on your tax return as income.
Here is a link to the IRS website further explaining IRC 30D: https://www.irs.gov/businesses/plug-in-electric-vehicle-credit-irc-30-and-irc-30d