Can I Qualify for an Electric or Hybrid Vehicle Tax Credit? by Stephanie Gutierrez, CPA
The Inflation Reduction Act (IRA) passed in 2022 ushered in enhanced tax credits for consumers who purchase new and used electric, hybrid and fuel-cell vehicles. However, it has become more difficult to qualify for the full value of the tax credit when you buy a new clean-energy vehicle that you place in service on or after April 18, 2023.
New Vehicles
The IRA offers a maximum $7,500 clean-energy tax credit to eligible consumers with annual modified adjusted gross income (MAGI) under $150,000 (or $300,000 for married couples filing joint tax returns) and who purchase new vehicles after January 1, 2023, that meet the following criteria:
- Its price is below $55,000 (or $80,000 for SUVs, trucks and vans), and
- It was partially manufactured, assembled and sourced with parts from North America (the U.S., Canada or Mexico.)
For vehicles placed into service after April 18, 2023, the dollar value of the credit depends on the vehicle’s mineral requirement ($3,750) and/or battery components requirement ($3,750). More specifically, to claim the full $7,500, at least 50 percent of the vehicle’s battery components must be manufactured or assembled in North America (the percentage increases by 10 percent each year until it reaches 90 percent in 2028) and at least 40 percent of the vehicle’s battery minerals must be extracted or processed in the U.S. or countries that have free-trade agreements with the U.S. or recycled in North America. Therefore, if you purchase a clean vehicle for which 40 percent of its battery minerals are extracted or processed in North America, you may claim a credit of $3,750 even if the vehicle does not meet the battery component requirement, and vice versa. When the vehicle purchased and placed into services after April 18, 2023, meets both requirements, you may receive the full $7,500 of the credit.
The only exceptions to the North America-assembly and battery-sourcing requirements for new, clean-energy vehicles apply to those held for “use in the purchaser’s trade or business or for lease, and not for resale.”
Used Vehicles
Purchasing a previously owned, clean-energy car or truck and qualifying for a potential $4,000 tax credit (or 30 percent of the sales price, whichever is less) also does not come with the same North American manufacturing restrictions as those for new vehicles and is therefore far easier to claim. Rather, qualifying for a tax credit requires the vehicles to be at least two years old, priced at $25,000 or less and purchased from a licensed dealer. In addition, the credit is available only to buyers whose annual MAGI does not exceed $75,000 (or $150,000 for married couples filing joint tax returns), which is 50 percent less than the amount allowable for a new vehicle purchase.
About the Author: Stephanie Gutierrez, CPA, is a senior manager of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where she works with entrepreneurs and high-net-worth families to develop and implement strategies for business, individual and estate tax efficiency. She can be reached at the CPA firm’s Miami office at (305)379-7000 or info@bpbcpa.com.
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