Tax credits are great in lowering tax liability and giving financial breaks for individuals who make purchases or engage in activities the federal government deems economically beneficial. With the introduction of the Clean Vehicle EV Tax Credit, drivers who make a qualifying electric vehicle purchase can claim up to $7,500 in tax credits.
While the credit seems simple and straightforward, navigating the tax credit and understanding if you have a qualifying electric vehicle (EV) or fuel cell vehicle (FCV) can be confusing.
The electric vehicle tax credit overhaul, which was approved by federal legislative bodies in the summer of 2022, has been tricky to unwind. The revised plan has also made it difficult for both drivers looking for electric cars for sale and EV sellers to understand what a qualifying purchase is and what restrictions and limitations apply.
EV Tax Credit Tacks on New Goals
The revised plan builds upon the tax credits goal of getting more drivers to buy electric cars for sale. The tax credit also aims to promote electric vehicle production right here in the United States. This has helped both consumers and EV makers push closer to an electric automotive landscape. New goals added to the tax credit include encouraging EV purchases by more middle-class shoppers and aiming to encourage new development of affordable EVs by setting price limits.
What Drivers Need to Know about Qualifying Vehicles
The tax credit has defined that qualifying EVs must be built in North America. However, rules regarding battery production and where battery materials are sourced are still up for debate. While these goals are in place, rules regarding these goals are still being implemented. Still, here’s what we do know about qualifying for the tax credit.
How Much of the Tax Credit Can You Claim?
Drivers can claim a $3,400 tax credit if they own qualifying hybrids model years 2005 – 2010. The $7,500 tax credit applies to owners of electric vehicles and plug-in hybrid electric vehicles.
Wear Your Electric Vehicle Was Made Matters
Qualifying electric vehicles must have been assembled in North America. Until rules regarding battery production are applied, most EVs will qualify under this rule. Automakers that are not currently assembling their EVs in North America are incentivized to bring production to the states, an economic boost the government is pinning for.
Income Tax Limits and Vehicle Price Limits
Household income limits will also apply. There is a limit of $300,000 for joint filers, $225,000 for heads of households, and 150,000 for individuals. Additionally, vehicle price limits are set as well. The maximum price of the vehicle caps at $80,000 for pickups, vans, and SUVs and 55,000 for cars, wagons, and hatchbacks.
Used EVS Purchases Now Qualify
Used EVs purchased from car dealers can now qualify for the tax credit as well. This new revision to the tax credit is aimed at encouraging and supporting drivers who are on a tight budget. The credit applied is $4,000 or 30% of the sales price, whichever is lower. Additionally, the used EV cannot be higher than $25,000 and must be at least two model years old. Income limit will also apply and includes $150,000 for a joint return, $112,000 for heads of household, and $75,000 for individuals.
State and Local Subsidies Still Apply
As the new federal changes go into effect, state and local subsidies will still apply. As with the federal program, state and local subsidies are designed to help boost EV sales and often come with fewer restrictions than the federal tax credit. To learn more about how this credit can apply to you and how to maximize its offerings, be sure to go over your current circumstances with your local tax preparer.
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