Electric Vehicle Credits after the Inflation reduction Act

 This is one of the new chapters in my latest tax book:
 
2022 Update: There were a lot of changes made to credits for Electric Vehicles with the Inflation Reduction Act passed in 2022. The majority of these changes either went into effect immediately or change which cars qualify and how much you can get. Because determining what cars qualify is so complicated, it is best simply to reference a list available on the IRS website or ask a car dealer. You can rely on a car dealer’s written certification that a car qualifies for the credit.
 
The credits are “non-refundable” meaning they cannot reduce your taxes below zero, and thus, it is important to review your tax return or discuss with your tax pro how much credit you REALLY get. The credits do not carryover so buying multiple cars and/or installing chargers or other credit worthy items could cause you to miss out on all or some of the credit.
 
New Vehicle Credit:
 
1.      The credit for new electric and alternate fuel vehicles is capped at $7500 and is based on a complex calculation using the type of energy, where it is manufactured, where the components are sourced and a few other things. Again, the dealer can tell you exactly how much the credit is worth for the vehicle you want (though they cannot tell you how much will actually be available on your tax return due to the non-refundable nature of the credit).
2.      The credit is only available if your current or prior year Adjusted Gross Income is $300,000 or less if filing jointly, $225,000 or less filing Head of Household and $150,000 or less for all other filing statuses. Using prior year income allows car dealers to directly reduce the price of the vehicle by the amount of the credit (plus a bit extra) starting in 2024.
3.      You have to provide the vehicles VIN number with your tax return.
4.      The credit is NON-REFUNDABLE so make sure you have the tax liability to take advantage of it.
5.      Starting in 2024, your car dealer can directly reduce the price of the vehicle by the credit amount plus an additional 6.0445 percent. At this time I’m not sure how this will work and what happens if you don’t have the tax liability for the full credit.
6.      This is the IRS site where you can find information on the credit and eventually see if a car qualifies: https://www.irs.gov/credits-deductions/individuals/plug-in-electric-drive-vehicle-credit-section-30d
7.      There was a limit where the credit was eliminated for a particular vehicle after 200,000 were sold. That has been eliminated in favor of a standard based on source of materials, type of power, place of manufacturer etc.
8.      The vehicle must be purchased, not leased.
9.      The vehicle must be primarily used in the United States.
 
Used Vehicle Credit
 
1.      The credit for used electric and alternate fuel vehicles is 30% of the sales price with a maximum credit of $4000. Again, the dealer can tell you exactly how much the credit is worth for the vehicle you want (though they cannot tell you how much will actually be available on your tax return due to the non-refundable nature of the credit).
2.      The credit is only available if your current or prior year Adjusted Gross Income is $150,000 or less if filing jointly, $112,500 or less filing Head of Household and $75,000 or less for all other filing statuses. Using prior year income allows car dealers to directly reduce the price of the vehicle by the amount of the credit (plus a bit extra) starting in 2024.
3.      You have to provide the vehicles VIN number with your tax return.
4.      The credit is NON-REFUNDABLE so make sure you have the tax liability to take advantage of it.
5.      Starting in 2024, your car dealer can directly reduce the price of the vehicle by the credit amount plus an additional 6.0445 percent. At this time I’m not sure how this will work and what happens if you don’t have the tax liability for the full credit.
6.      This is the IRS site where you can find information on the credit and eventually see if a car qualifies: https://www.irs.gov/credits-deductions/individuals/plug-in-electric-drive-vehicle-credit-section-30d
7.      The car must be sold by a dealer (I am sure that some enterprising car dealers may find a way to play intermediary on a private sale to allow for the credit. It might be worth your time to investigate this if you are involved in a private sale of an otherwise qualifying car. I am NOT stating that this will be legal – I have no idea. That said, if it turns out to be a legal loophole, taking advantage of it is a no-brainer.
8.      You must be the SECOND owner.
9.      The vehicle must be 2 or more years old.
10.   The sales price of the vehicle, before the credit, must be less than $25,000.
11.      The vehicle must be purchased, not leased.
12.      The vehicle must be primarily used in the United States.
 
Car Chargers:
 
1.      There is a credit of up to $1000 for installing fueling systems in your home, generally a car charger, though check with the installer.
2.      The credit is 30% of the cost of installing.
3.      This credit is also non-refundable so buying an electric vehicle and installing a charger in the same year increases the chance that you will lose some of the credit.
 
My Advice:
 
1.      Talk to your tax professional before you buy the vehicle. Give them estimates for changes to your return from the prior year so they can estimate how much of the credit you will qualify for.
2.      The credit is awesome but don’t let it impact your vehicle purchase decision too much. These cars are more expensive even after the credit so make sure you are buying this kind of car because it makes sense in your life, and not because of the tax credit.
3.      Get the proof of qualification from the dealer IN WRITING before finalizing the sale.