Clean vehicle credit eligibility

Did you purchase a new clean vehicle in 2023?  You could qualify for a tax credit up to $7,500 if you meet the new requirements enacted by the Inflation Reduction Act to promote clean energy. The current tax credit for clean vehicles has been extended until December 2032 for both individuals and businesses.

WHAT VEHICLES QUalify?

·         Be purchased new

·         Be made by a qualified manufacturer

·         Have a gross vehicle weight rating of less than 14,000 pounds

·         Have final assembly in North America

·         Have at least a 7-kilowatt hour battery capacity

You can find the above information on your vehicles window sticker at purchase. You can also verify your vehicles specifications online on the Departments of Energy’s website using the VIN Decoder Tool. The seller must report your name and tax ID number to the IRS at the time of the sale, along with your vehicle’s qualifying information.

Several other factors that determine your eligibility include:

·         Modified Adjusted Gross Income (MAGI)

·         Manufacturer’s suggested retail price ( MSRP)

·         Date you placed the vehicle in service

MAGI

The IRA (Inflation Reduction Act) has set an income limit on the clean vehicle tax credit. You can either use your MAGI the year you place your vehicle in service or from the year prior. If either year’s adjusted gross income falls below the threshold, you may claim the credit. Here are the threshold amounts for each type of tax filer:

Married filed jointly: $300,000

Head of Household: $225,000

All other filers: $150,000

MSRP

The IRA has also set limitations on the manufacturer’s suggested retail price. The cap on vans, SUV’s, and trucks is $80,000, while all other vehicles cannot exceed $55,000. This differs from the purchase price. You will find the MSRP on the vehicle’s window sticker.

Date Placed in Service

The amount of credit depends on when you placed the vehicle in service. This could differ from the date you purchased the vehicle. For instance, if it was delivered a month after you purchased the vehicle, you would use the date of delivery.

If you placed the vehicle in service between January 1st to April 17, 2023 and meet the above requirements, you will receive:

·         $2,500 base credit

·         An additional $417 credit if the vehicle has at least a 7 kilowatt hour battery capacity

·         An additional $417 for each kilowatt hour above 5 kilowatt hour

For example, if you have a 7 kilowatt hour battery capacity you will receive the $2,500 base credit, $417 credit and $834 for the 2 kilowatt hours above 5 kilowatt hours ($417*2). A total of $3,751 credit. Note that the maximum credit allowed is $7,500.

If you place the vehicle in service between April 18, 2023 and after, you will not only need to meet the above eligibility requirements, but you will also have to meet battery and mineral component requirements in order to take the full credit.

·         You will receive $3,750 if the vehicle ONLY meets the mineral requirements

·         You will receive $3,750 if the vehicle ONLY meets the battery components requirements

·         If you meet both, you can take advantage of the full $7,500 credit

This means that the battery and its components must be primarily manufactured in the US or a country that the US has a free trade agreement with. The applicable percentage will increase every year as the goal is to bring work to America. To find this information, a good place to start is the dealer. You can also check out www.FuelEconomy.gov.

Other things to think about when planning to purchase a clean vehicle:

·         You can only take the credit up to the amount you owe in taxes.

·         You cannot carry forward any excess credit to future year tax returns.