Clean Vehicle Tax Credit

Sep 29, 2022 | Tax News

As the public interest in climate-friendly investments grows, we will continue to see developments set by global and local governments to incentivize individuals and businesses towards more climate-friendly choices and operations.

One such development can be found as a result of The Inflation Reduction Act of 2022. This Act led to the modification of the previously named, Qualified Plug-in Electric Drive Motor Vehicle Credit (IRC 30D), now known as the Clean Vehicle Credit which was put into effect on August 16, 2022.

So what does the Clean Vehicle Credit entail, and what are some qualifications and requirements? Let’s discuss!

What is it?

In a nutshell, the Clean Vehicle Credit is the U.S. government’s way of encouraging vehicle buyers to choose electric vehicles (EVs) over gas-powered vehicles through a non-refundable tax credit. The credit for the purchase of a new EV car starts at a minimum of $2,500 with a maximum of $7,500 depending on the battery capacity and gross vehicle weight. One addition to the amended Clean Vehicle Credit compared to the former IRC 30D version is the potential credit for used EV purchases, which could reach a max credit amount of $4,000.

What Qualifies?

If you’re worried that purchase(s) of an EV before the August 16 bill was signed, prevents you from benefitting from this tax credit- I have good news for you! All qualifying vehicles acquired after December 31, 2009, are still viable for a tax credit. However, once 200,000 qualifying vehicles have been sold by the manufacturer for use in the United States, the credit will begin to phase out for that manufacturer.

As for EV vehicles purchased between August 16, 2022- December 31, 2022, the Clean Vehicle Credit now requires vehicles to have final assembly in North America in order to qualify. Additionally, the manufacturer sales cap on vehicles purchased will still apply.

Beginning January 1, 2023, manufacturing sales caps will be removed, include both EVs and FCEVs (Fuel Cell Electric Vehicles), and a new requirement that the traction battery has at least seven-kilowatt hours.

Other Requirements

So we understand what vehicles fall under the qualifiable standards, but it is equally important to know some of the limitations to the credit beginning January 2023.

  • Vans, SUVs, and pickup trucks must have an MSRP of $80,000 and under, others such as passenger vehicles must be $55,000 and under
  • Beginning in 2023, 50% of the EV’s battery components must come from the United States or another country that has a free trade agreement with the U.S. (with the percentage increasing yearly)
  • Used EV purchases must take place at a dealership
  • The credit may only be applied once in a vehicle’s lifetime, NOT its ownership

If your company has purchased or intends to purchase a qualifying EV(s), you should be benefiting from your energy-saving investment through this tax incentive. Still a little fuzzy on this credit’s specifics and how to reap the benefits? Let a taxpert take the wheel and navigate the process of filing the required IRS forms for this tax credit, and search for other money-saving detours on the way!

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