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In claiming potential $7,500 EV tax credit, note delivery date & other rules

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Earth Day is tomorrow, April 22. This annual celebration of Mother Earth's beauty and its focus on ways to make a positive impact on our planet has lots of folks thinking about how they can reduce their carbon footprints

In keeping with the 2023 theme "Invest in Our Planet," a lot of folks are considering investing in an electric or other alternative energy vehicle to lower their dependence on fossil fuels.

Of course, tax breaks also could nudge them down that road.

The good news is that the Biden Administration pushed through a new $7,500 electric vehicle (EV) tax credit. The bad news, though, is that getting Uncle Sam's help in paying for your new clean vehicle isn't that easy.

The Inflation Reduction Act of 2022 changed the rules for the EV credit, available to individual purchasers and their businesses, for vehicles bought starting in 2023 to 2032.

The amount of the credit depends on when the eligible new clean vehicle is placed in service and whether the vehicle meets certain requirements for a full or partial credit.

And both the buyer and the auto must meet certain requirements.

Buyer, vehicle qualifications: To qualify, you must buy the qualifying vehicle for your own use, not for resale, and use it primarily in the United States.

There are also income limits. Your modified adjusted gross income (MAGI) may not exceed — 

  • $300,000 for married couples filing jointly 
  • $225,000 for heads of households
  • $150,000 for all other filers

Dollars also come into play for the vehicle, as the new law sets price limits on new clean vehicles eligible for the credit.

The manufacturer's suggested retail price (MSRP) for the new clean vehicle may not exceed the following amounts for the following vehicle types —

  • Vans up to $80,000
  • Sport Utility Vehicles (SUVs) up to $80,000
  • Pickup Trucks up to $80,000
  • Other qualifying vehicles up to $55,000

If the MSRP exceeds the limitation for that specific vehicle type, that vehicle is not eligible for the new clean vehicle credit.

Finally, and this is a big sticking point, if you get a new clean vehicle on or after April 18, 2023, it must meet critical mineral and battery component requirements to qualify for the credit. This applies even if you bought the vehicle before April 18.

Timing is critical: The April 18 date is just one calendar page you need to pay attention to when it comes to the new EV credit.

The new tax credit of up to $7,500 actually took effect on Jan. 1, 2023. But the precise amount of credit depends not only on the auto's component rules, as well as when the eligible new clean vehicle is placed in service, regardless of purchase date. Placed in service is IRS speak for when you actually took delivery of the vehicle.

For vehicles placed in service from Jan. 1 to April 17, 2023, the credit, up to a $7,500 total, is calculated as —

  • $2,500 base amount,
  • Plus $417 for a vehicle with at least 7 kilowatt hours of battery capacity,
  • Plus $417 for each kilowatt hour of battery capacity beyond 5 kilowatt hours.

The final math line generally means the minimum credit amount for these earlier-in-2023 autos will be $3,751. That's $2,500 plus 3 x $417, representing the credit amount for a vehicle with the required minimum of 7 kilowatt hours of battery capacity.

For vehicles placed in service on or after April 18, the credit amount will depend on the vehicle meeting the critical minerals requirement ($3,750) and/or the battery components requirement ($3,750).

Vehicles must meet all of the pre-April 18 criteria listed above, plus the new critical mineral and battery component requirements. That's #3,750 if the vehicle meets the critical minerals requirement only and $3,750 if the vehicle meets the battery components requirement only. The full $7,500 is available for vehicles that meets both.

Qualified vehicles: FuelEconomy.gov keeps track of eligible clean vehicles, including fuel cell vehicles, that the manufacturers have told the IRS meet the tax credit requirements. The interactive listing lets you search by when you put or plan to put the auto into service, the vehicle makes and models, and type of vehicle, either all electric, plug-in hybrid, or both.

Chevrolet_Bolt_EUV
Chevrolet Bolt EUV

The federal website promises its listings will be promptly updated as additional vehicle eligibility requirements take effect and as manufacturers provide updated information. My search of all 2022-2024 EVs turned up the following list, updated April 19, of 26 qualifying vehicles assembled in the United States by six manufacturers.

Make

Model

Years

MSRP

Credit

Cadillac

LYRIQ

2023-2024

$80,000

$7,500

 

Chevrolet

Blazer

2024

$80,000

$7,500

Chevrolet

Bolt

2022-2023

$55,000

$7,500

Chevrolet

Bolt EUV

2022-2023

$55,000

$7,500

Chevrolet

Equinox

2024

$80,000

$7,500

Chevrolet

Silverado

2024

$80,000

$7,500

 

Ford

E-Transit

2022-2023

$80,000

$3,750

Ford

F-150 Lightning (extended range battery)

2022-2023

$80,000

$7,500

Ford

F-150 Lightning (standard range battery)

2022-2023

$80,000

$7,500

Ford

Mustang Mach-E (extended range battery)

2022-2023

$80,000

$3,750

Ford

Mustang Mach-E (standard range battery)

2022-2023

$80,000

$3,750

         

Rivian

R1S

2023

$80,000

$3,750

Rivian

R1T

2023

$80,000

$3,750

 

Tesla

Model 3 Performance

2022-2023

$55,000

$7,500

Tesla

Model 3 (standard range rear wheel drive)

2022-2023

$55,000

$3,750

Tesla

Model Y (all-wheel drive)

2022-2023

$80,000

$7,500

Tesla

Model Y (long range all-wheel drive)

2022-2023

$80,000

$7,500

Tesla

Model Y Performance

2022-2023

$80,000

$7,500

 

Volkswagen

ID.4 AWD PRO

2023

$80,000

$7,500

Volkswagen

ID.4 AWD PRO S

2023

$80,000

$7,500

Volkswagen

ID.4 AWD PRO S PLUS

2023

$80,000

$7,500

Volkswagen

ID.4 PRO

2023

$80,000

$7,500

Volkswagen

ID.4 PRO S

2023

$80,000

$7,500

Volkswagen

ID.4 PRO S PLUS

2023

$80,000

$7,500

Volkswagen

ID.4 S

2023

$80,000

$7,500

Volkswagen

ID.4 STANDARD

2023

$80,000

$7,500

 

Not refundable: While any help in buying a car is welcome, the tax credit is particularly helpful because it is a credit. That's a dollar-for-dollar offset of any tax due.

Note, however, that the new clean vehicle tax credit is nonrefundable. The amount available can only be used to reduce or eliminate your tax bill. If you have more clean vehicle credit than tax owed, you lose the credit since it can't be refunded.

Also, for individuals who buy a qualifying vehicle for personal use, any new clean vehicle credit cannot be carried forward and claimed on future Form 1040 filings.

However, the new clean vehicle credit can be carried forward if the vehicle is for business use. In these business use cases, the credit typically is claimed on Form 3800, General Business Credit.

More credit information: You can find more on how to claim the EV tax credit on Form 8824 (excerpt below) and its instructions, which are part of the form. This is what you'll file with your 1040 to claim the tax credit.

Form 8834 EV tax credit
See more tax forms and more about them at 2022's Talking Tax Forms and Tax Forms 2023.

If you want to double down on your clean vehicle tax break knowledge, you can find additional info at information at IRS.gov's used clean vehicles, qualified commercial clean vehicles, and new plug-in EVs purchased before 2023 web pages.

The tax agency also updated last month its clean vehicle frequently asked questions fact sheet.

FuelEconomy.gov has more on all-electric and fuel cell vehicles, as well as plug-in hybrids.

Speediest EV: Check out my tumblr blog Tumbling Taxes' May 21, 2023, post on the fastest electric vehicle on the road (for now). The Rimac Nevara, an all-electric two-seater sports car designed and manufactured by the Croatian automotive manufacturer Rimac Automobili, recently smashed 23 Performance World Records. But most of us will never be able to drive the hypercar, which has limited production runs and costs north of 2 million euros.

You also might find these items of interest:

 

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TaxZerone

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