Tax Credits for Clean Vehicles Change in 2024 by Brendan Kurpis, CPA
Effective Jan. 1, 2024, it is easier for individuals to claim federal tax credits for the purchase of new electric, plug-in hybrid and fuel-cell electric vehicles, but there are fewer cars and trucks that qualify for the full $7,500 credit this year.
The clean vehicle tax credit was amended in 2022 as part of the Inflation Reduction Act (IRA) to promote U.S. manufacturing and incentivize consumers to adopt carbon emission-reducing technologies. To claim the credit, taxpayers must have modified adjusted gross income (MAGI) under $150,000 (or $300,000 for married couples filing joint tax returns). The vehicles themselves must be new with final assembly in North America and manufacturer’s suggested retail prices (MSRPs) of below $55,000 for sedans or $80,000 for vans, SUVs and pickup trucks. There is a separate nonrefundable tax credit of up to $4,000 for the purchase of clean used vehicles.
The potential value of the new vehicle credit depends on the makeup of the automobile’s components. For example, to receive half the credit’s value ($3,750) in 2024, at least 50 percent of the battery’s critical minerals must be extracted or processed in the United States or a U.S. free-trade agreement partner in 2024. Eligibility for the other half of the credit requires that at least 60 percent of the vehicle’s battery components be manufactured or assembled in North America. Because these ratios are set to increase by 10 percent each year, restrictions on eligible vehicles will tighten and potentially leave consumers with a small pool of models to choose from. You can find more information about qualifying vehicles by visiting the Department of Energy’s website at https://fueleconomy.gov/.
The good news for consumers in 2024 is that they do not have to wait until they file their tax returns next year to claim tax credits for clean vehicles they purchase and place into service this year. Instead, the credit is available at the point of sale and can be transferred directly to the dealership as a rebate to reduce the vehicle’s purchase price.
About the Author: Brendan Kurpis, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where he helps entrepreneurs and high-net-worth individuals implement federal and state tax compliance strategies that protect wealth and minimize tax liabilities. He can be reached at the CPA firm’s New York, N.Y. office at (646) 213-7600 or info@bpbcpa.com.
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