Did You Buy an Electric Vehicle? IRS Provides New Tax Guidance

According to the International Energy Agency, electric car sales have increased by 35% in 2023 compared to 2022. If you’re one of the many drivers who went green this year and bought an electric vehicle, you might wonder how the new electric vehicle tax credit applies to you.

The government is rewarding people for purchasing clean vehicles. However, since the EV tax credit is still new, there’s some confusion around it. What are the IRS electric vehicle requirements? How do income limits influence your tax credit? Is the tax credit refundable?

What Is the Clean Vehicle Tax Credit?

In 2005, the Energy Policy Act offered a credit of up to $3,400 to buyers of hybrid vehicles. In 2009, the American Recovery and Reinvestment Act increased this amount to $7,500 and expanded the credit to include all electric vehicles. 

Then, in late 2022, the Senate passed the “Clean Vehicle Credit” under the Inflation Reduction Act.

The Inflation Reduction Act (IRA) extends EV tax benefits through December 2032. It also expands eligibility requirements to include electric vehicles by automakers who’d previously exhausted the unit threshold, like Tesla. 

This tax credit offers up to $7,500 for new qualifying vehicles and up to $4,000 for qualifying used electric vehicles. You can claim this credit on your taxes, and starting in 2024, you may be able to collect the credit up front upon purchase. 

Eligibility Requirements for the Clean Vehicle Credit

Now that you know what the Clean Vehicle Tax Credit is, you’re probably wondering if you qualify. The first distinction to make is whether you purchased a new electric vehicle or a used one. There are two separate sets of qualifications for these vehicles. 

IRS electric vehicle requirements include: 

• Have a battery size of at least 7 kWh 
• Have a gross vehicle weight rating of less than 14,000 pounds
• Have at least 40% of its battery-critical minerals from the U.S. or countries with a free trade agreement with the U.S.

Note that the 40% requirement will increase by 10% every year, making it 50% in 2024, 60% in 2025, and so on. The vehicle must have an MSRP (Manufacturer’s Suggested Retail Price) of $55,000 or less for most vehicles. For SUVs, vans, and trucks, the MSRP must be $80,000 or less to qualify.

Income Limits for the Clean Vehicle Tax Credit

The income tax limits for this credit, according to the U.S. Treasury Department, are $150,000 or less as an individual, $225,000 as the head of a household, or $300,000 or less when filing jointly. 

Used electric vehicles must meet the same vehicle requirements and must be at least two years old when you purchase them. Additionally, you must purchase the vehicle intending to use it, not resell it. You cannot be named as a dependent on another’s taxes, and your individual income cannot exceed $75,000 ($112,000 for heads of households, $150,000 when filing jointly).  

Since this credit is non-refundable, the maximum credit you can receive is equivalent to the income tax you owe. For example, if you purchased a new electric vehicle and owe $4,000 in taxes, you’ll collect $4,000 for your credit. You cannot collect the other $3,500 as a refund. 

File for the Clean Vehicle Tax Credit With Experienced Tax Attorneys

Did you purchase an electronic vehicle this year and have questions about IRS electric vehicle requirements and how to file for the credit? Contact professional tax attorneys at Levy & Associates, Inc. for guidance. We’re available at 800-TAX-LEVY or through our contact form.