New electric vehicle tax credit gets complicated for 2023
Q: I hope to buy an electric vehicle soon. Would I be eligible for a tax credit for driving green? A:
Tax credits for electric vehicles got revamped in 2022 thanks to the Inflation Reduction Act, a massive tax law that contains more than 200 clean energy tax credits and incentives.
The new EV tax credit of up to $7,500 can be claimed on new so-called “clean vehicles,” while a lower tax credit applies to certain used EVs.
But the new tax credit rules for EVs that became effective Jan. 1 are also a mix of battery sourcing and capacity requirements, price caps and income limits.
And there’s a significant assembly requirement from last year: Qualifying EVs must undergo final assembly in North America.
To help consumers sort through it, the IRS (www.irs.gov) recently released answers to frequently asked EV questions and a new list of EVs that qualify for the 2023 federal EV tax credit.
But the agency also announced that much-anticipated rules addressing sourcing requirements for the new EV tax credits will not be available until March.
That essentially means that some cars that are eligible for the full clean vehicle tax credit now might not be eligible weeks from now.
And the resulting “rule gap,” which seems to apply for the first part of 2023, is causing some confusion about which cars are eligible for the federal electric vehicle tax credit.
At the end of December, the IRS released a new list of the electric vehicles that currently qualify for the 2023 EV tax credit. The agency has said that it will add to that list over the coming days and weeks. So, if you don’t see a specific electric vehicle, it doesn’t necessarily mean that the EV you want doesn’t qualify for the tax credit later.
Also, keep in mind that to be on the IRS’ eligible EV list, vehicles must have a minimum battery capacity requirement of 7kWh and gross vehicle weight rating less than 14,000 pounds.
Cost also factors into which vehicles are considered eligible for the tax credit. The manufacturer suggested retail price (MSRP) for electric cars must be less than $55,000. The MSRP for eligible electric pickup trucks, SUVs and vans cannot be more than $80,000. (Used EVs must be purchased from a licensed dealer and cost less than $25,000 to qualify for the tax credit.)
In any case, if you’re eligible to claim the EV tax credit, it must be taken in the year that you take delivery of the EV. The exact amount of the credit is based on a calculation that considers factors including the vehicle’s sourcing (more on that coming from the IRS in March) and final assembly.
You claim the EV tax credit on IRS Form 8936.