Clean Vehicle Tax
/“Going green” can offer both environmental and financial benefits. With global conflicts and increased gas prices, now may be the time to explore reducing your carbon footprint to better the earth and save money.
Though there were some changes to the electric vehicle credit as a result of the Inflation Reduction Act of 2022, the maximum amount of the credit remains $7,500, but the number of vehicles per manufacturer is no longer limited.
To claim the credit, several criteria must be met, such as the vehicle must draw propulsion energy from a battery with
at least five kilowatt hours of capacity, and your income must fall under a certain threshold (i.e., $150,000 for single filers, $300,000 for joint filers and $225,000 for heads of households). Also, for new vehicles sold after Aug. 16, 2022, only vehicles whose final assembly is in North America will qualify.
There is also a new 30% credit, up to a $4,000 maximum, for taxpayers who buy a qualifying used “clean vehicle” after 2022 and before 2032. To qualify, however, your modified adjusted gross income must be under a certain threshold (i.e., under $75,000 for single filers, $150,000 for joint filers and $112,500 for heads of household).
Note that there are also price caps that apply to both the new and used vehicle credits. For new cars, the credit is
not allowed for cars with a manufacturer’s suggested retail price over $55,000 or for vans, SUVs or pickup trucks with a manufacturer’s suggested retail price over $80,000. The sales price for any used vehicle must be $25,000 or less.
Before you purchase your electric vehicle, you may want to do some research to ensure you qualify. IRS.gov provides an index of manufacturers to help you determine if a particular brand and model year qualifies for the tax benefit. The Department of Energy provides a list of model year 2022 and early model year 2023 electric vehicles that meet the final assembly requirement. And keep in mind that beginning with vehicles acquired after 2023, purchasers may transfer the credit to the dealer (meaning the credit could be applied to lower your cash outlay for the car rather than waiting to receive the benefit when you file your tax return). Be sure to let your tax preparer know the details of the sale, including the Vehicle ID Number.
- Pam Smitson, CPA, CGMA, Smitson Erhart-Graves Financial Advisors
