Do You Qualify for the 2023 Federal Electric Vehicle Tax Credit?
There is a lot of excitement about the new government incentives created to help people switch to electric vehicles. Under the Inflation Reduction Act of 2022 (IRA), individuals can qualify for up to $7,500 back when buying a new electric car, or 30% of the sale price for a used car, up to $4,000. The good news is that these tax credits apply to cars delivered in 2023, even if they were purchased in 2022. The bad news is that not everyone or every electric vehicle qualifies for the credit and figuring out what you qualify for is trickier than one might hope. Given how much money is at stake, you will want to double check if you qualify in advance to make sure you are not surprised or disappointed.
To check your eligibility for these government rebates, you need to review a few key criteria -- including your income level, the price of the vehicle, and where that vehicle was assembled. (There are additional consideration when purchasing a used vehicle, which are noted below.) We’ve put together this quick guide to federal electric vehicle tax credits to help you easily navigate your family’s eligibility status. You can also find a complete list of criteria on the IRS website.
Income Level
Under the new IRA law, you are eligible for the federal electric vehicle tax credit when buying a new vehicle if your modified adjusted gross income (AGI) does not exceed:
$300,000 if married, filing jointly
$225,000 for head of household
$150,000 all other taxpayers
If you are unsure if your AGI is under this threshold, you can use the online calculator here to get a better estimate.
For used vehicles
The income thresholds for purchasing used vehicles are lower for used vehicles:
$150,000 if married, filing jointly
$112,500 for head of household
$75,000 all other taxpayers
Which year do you look at? The answer is either the year you purchased the used vehicle or the year before - whichever year your modified adjusted gross income (AGI) was smaller. In addition, to qualify for the used vehicle tax credit there is the added stipulation that you cannot be claimed as a dependent on another person’s tax return.
Cost of the Vehicle
The “cost” of a new vehicle for federal tax credit purposes is not what you actually pay for it, like it is with a used car, but instead is based on the manufacturer’s suggested retail price (MSRP). The MSRP includes the retail price for any accessories or optional equipment physically attached to the vehicle at the time of delivery to the dealer. It does not include additional items added by the dealer, taxes, or fees.
The price caps are different for new and used vehicles:
• New Vans, SUVs, and Pickup Trucks = $80,000
• New Cars & Other vehicles = $55,000
• Used vehicles of all kinds = $25,000
For used vehicles
Used vehicles have additional restrictions to qualify for the federal tax electric vehicle credit. They must be at least two years old and purchased from a dealer for your own use and not for resale. You cannot be the original owner of the vehicle and you must be the first person to whom the car is transferred after August 16, 2022. In other words, if someone already took the used vehicle tax credit for the car, you will not be eligible for it. Finally, it must have been at least three years since you took another previously owned clean vehicle credit deduction for you to qualify.
Different models, different classifications
Importantly, some vehicles change classifications based on how they are configured. For example, the Volkswagen ID.4 without all-wheel drive is classified as a car, but with all-wheel drive it is classified an SUV. However, a similar all-wheel drive upgrade does not change the status of a Tesla Model Y. Instead, the Model Y shifts categories based on the number of rows of seats it has (becoming an SUV for tax purposes with a third row).
Looks alone are not always a good way to determine a vehicle’s classification. Many consumers think of the plug-in Lincoln Corsair and the Cadillac Lyriq as SUVs, but they are classified as cars for EV tax credit purposes. Check which category your vehicle falls under with the dealer, or you may consult this complete list on the IRS website.
Assembly and Sourcing Requirements
Perhaps the most confusing provision of electric vehicle tax credit regulations are the sourcing and assembly requirements, as both the rules and the manufacturers’ practices are in constant flux. As of February 2023, to qualify for the tax credit all new electric, fuel cell electric, and plug-in hybrid electric cars purchased after August 17, 2022 must have their final assembly take place in North America. You can find out a specific car’s final assembly location by entering the VIN number in the NHTSA database.
Forthcoming assembly and sourcing requirements
There are two further aspects of the tax credit that will have significant impact on vehicle eligibility. The “battery assembly requirement” and the “critical minerals requirement” are awaiting further Treasury Department guidance. For now, they say they will not enforce them until March 2023, but that timeline could change. Each of these requirements will affect 50% of the total tax credit, so that failure to meet the requirement in either of these categories will reduce the total tax credit by $3,750.
-
The battery manufacturing/assembly requirement determines the percent of a battery that must be assembled or manufactured in the USA in order for the vehicle to qualify. This percent increases over time, based on the following schedule:
2023: 50%
2024: 60%
2025: 60%
2026: 70%
2027: 80%
2028: 90%
2029-2032: 100%
-
The critical minerals requirement stipulates that a certain percent of a battery’s critical minerals must be extracted from or processed in the United States or in a country that the US has a free-trade agreement with, based on the following schedule:
2023: 40%
2024: 50%
2025: 60%
2026: 70%
2027 through 2032: 80%
There will also be restrictions beginning in 2024/2025 that disqualify vehicles that source battery parts or critical minerals from foreign countries of concern (e.g., China).
-
In addition to the requirements outlined above, every qualifying vehicle must also have:
Battery capacity of at least 7 kilowatt hours;
<14,000 pounds gross vehicle weight rating;
Be made by a listed qualified manufacturer
Fuel cell vehicles are excluded from this requirement.
Given the complex nature of the tax credit eligibility requirements, you will want to double check your status and plans before you buy a new or used electric car, SUV, or truck. We also recommend you speak with a tax professional or accountant to confirm you are filing for the right amount when the time comes. As a reminder, the EV tax credit does not carry forward and it must be used in the year you take delivery.
MoveEV’s software is built to make the processes of finding eligible cars and filing easy! And, if you’re unsure – just reach out and ask us! We are always here to help.