EVs can be an excellent way to help the environment and reduce carbon emissions. As the cost of EVs decreases and the number of EVs on the roads increases, there's more reason to purchase a new or used EV. Another reason is to claim the EV tax credit. Please keep reading to learn about the EV tax credit, including how to claim it for your EV.
What Is the EV Tax Credit?
The EV tax credit, or electric vehicle tax credit, is a way to reduce your total owed taxes for a year when you purchase an electric or "clean" vehicle. Typically, tax credits are an exact dollar match for a purchase you make. Still, for the EV tax credit, you can get a nonrefundable tax credit between $2,500 and $7,500, depending on the factors of your vehicle purchase. Several factors affect the amount you receive, including the vehicle's weight, the number of cars the manufacturer has sold, and whether you're purchasing or leasing the vehicle.
If you purchased an EV in 2022, you could apply the credit to your taxes when you file them in 2023, though the rules from 2022 apply. Starting on January 1, 2023, several rules changed because of the Inflation Reduction Act (IRA), so purchasing an EV in 2023 and receiving your tax credit is more straightforward than before.
Changes to the EV Tax Credit in 2023
The changes that apply to the EV tax credit in 2023 will last until 2032 since that's the data stipulated in the act for EV tax credits. One of the primary changes is the extension of the tax credit to certified pre-owned or used electric vehicles. Previously, the tax credit only applied if you purchased a new EV. If you buy a used car, the tax credit can cover up to $4,000 or 30% of the total vehicle purchase, whichever is first. This can help you feel more comfortable buying an EV for personal use.
Another change is to the manufacturing requirements of the EV. These apply to the companies that design and build the vehicles, which a dealership can certify for you. Finally, the IRA increased the number of cars that qualify for the tax credit. This means there's a higher likelihood you will purchase a vehicle with which you can claim the tax credit. To understand which vehicles qualify, you can research which manufacturers and models have the tax credit and which don't. This can help you double-check before you buy or lease an EV.
How Do You Qualify for the Tax Credit?
The Internal Revenue Service (IRS) has several requirements before you can claim your EV tax credit. These include purchasing the vehicle for your use, not as a resale vehicle. You also have to use the car primarily in the United States. Another requirement the IRS has is a modified adjusted gross income limit. To qualify for the credit, your AGI can't exceed the following:
- $300,000 for married couples filing jointly.
- $225,000 for heads of household.
- $150,000 for every other filer.
When you calculate your AGI, you can calculate the current or previous year and use the lower of the two. If your AGI in either year exceeds the stated limits, then you qualify for the EV tax credit.
What Vehicles Does the Credit Cover?
The EV tax credit applies to a wide variety of vehicles, especially after the changes the IRA caused. Currently, the tax credit applies to 19 manufacturers. These are:
- Audi of America, LLC
- BMW of North America, LLC
- Ford Motor Company
- General Motors, LLC
- Hyundai Motor America
- Jaguar Land Rover, Ltd.
- Kia America Inc.
- Mazda Motor of America, Inc.
- Mercedes-Benz USA, LLC
- Mitsubishi Motors North America, Inc.
- Nissan North America
- Proterra Operating Company, Inc.
- Rivian Automotive, LLC
- Stellantis N. V. (Jeep and Chrysler)
- Subaru of America, Inc.
- Tesla, Inc.
- Toyota Motor Sales, U. S. A., Inc.
- Volkswagen Group of America
- Volvo Car North America, LLC
While these are the manufacturers the tax credit can apply to, there are other qualifications the vehicle must meet. First, it has to have a battery capacity of at least seven-kilowatt hours. Then, it must weigh less than 14,000 pounds. Next, it must have its final assembly in America. The seller must report your name and tax identifier number to the IRS when you purchase the vehicle. Finally, the manufacturer's suggested retail price (MSRP) can't be higher than $80,000 for vans, SUVs, and pickup trucks or $55,000 for other vehicles.
How Do You Claim the Tax Credit?
There are two ways to claim the tax credit, but both require the dealership to certify the purchase with the IRS. The first is for an electric vehicle you own and haven't claimed the credit. In this process, you fill out Form 8834 and Form 8582-CR to calculate your passive activity credits, which you didn't appropriate in the previous year. To use this method, you have to be the original purchaser of the vehicle, and it must have been new when you purchased it. This method yields 10% or $2,500 per EV, whichever threshold you meet first.
The other way to claim the tax credit is to fill out Form 8936. This form is if you purchased an EV in the current tax year and applies to plug-in EVs, including two-wheeled EVs. This form can yield up to $7,500 in tax credit but varies based on how you use the vehicle you purchased. Factors that affect this credit include whether you're using the car for personal or business purposes and the total amount of tax liability or owed taxes you already have in the current tax year.
Now that you know how to claim the EV tax credit, you can prepare to buy a used or new EV. You can contact Apple Honda of York to learn about services for your vehicle. You can also browse our new vehicle inventory to find the EV of your dreams.
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