How to Get EV Credits at Tax Time

Understanding EV Tax Credits

If you’re wondering how to get EV credits at tax time, you’ve come to the right place! This guide will help you navigate the complexities of electric vehicle (EV) tax credits, covering the past, present, and future of these incentives. With the growing push for clean energy and sustainable transportation, understanding how to take advantage of tax credits can make a significant financial difference for EV buyers.

Since the signing of the Inflation Reduction Act (IRA) in August 2022, the rules for obtaining EV tax credits have changed significantly. While it aims to tackle climate change and build a nationwide EV charging network, the IRA also introduces new requirements for the popular $7,500 tax credit, which can make it confusing for consumers trying to determine their eligibility. This guide breaks down the essential details to make the process more straightforward.

Different Timelines for EV Purchases

The eligibility requirements for EV tax credits are divided into four main timelines:

• On or before August 16, 2022
• Between August 17 and December 31, 2022
• Between January 1 and April 17, 2023
• On or after April 18, 2023

Each of these timelines has its own set of requirements for tax credit eligibility. Below, we will explore these in detail to help you understand what criteria your EV must meet.

EVs Purchased On or Before August 16, 2022

For new EVs purchased on or before August 16, 2022, the tax credit value is calculated based on battery capacity. The base amount is $2,917, with an additional $417 for every kilowatt-hour (kWh) of battery capacity beyond 5 kWh. To qualify for the full $7,500 tax credit, the vehicle must have at least a 16-kWh battery capacity.

Other requirements include a gross vehicle weight rating (GVWR) of less than 14,000 pounds, and the automaker must not have sold more than 200,000 EVs in the United States. Automakers like Toyota and Tesla that reached this threshold saw their tax credits phased out. The IRS provides an index listing all qualifying manufacturers and models under these rules, helping consumers quickly determine eligibility.

EVs Purchased Between August 17 and December 31, 2022

For vehicles purchased between August 17 and December 31, 2022, the tax credit requirements included all of the previous stipulations, with an added requirement: final assembly must have taken place in North America (United States, Canada, or Mexico). You can verify your vehicle’s final assembly location using the Department of Energy’s VIN verification tool. This tool allows you to input your Vehicle Identification Number (VIN) and confirm whether your car meets the final assembly requirement.

In cases where the purchase agreement was signed before August 16, 2022, but delivery occurred after, buyers can still follow the older rules without the assembly requirement. However, if the agreement was signed between August 17 and December 31, but delivery took place in 2023, the 2023 rules will apply.

EVs Purchased Between January 1 and April 17, 2023

Things get a bit more complex for EVs purchased between January 1 and April 17, 2023. To qualify for the tax credit, the vehicle must have a minimum battery capacity of 7 kWh. The credit amount is determined by a base of $2,500, plus $417 for every kWh beyond 5 kWh, up to a maximum of $7,500.

Additionally, there are sale price limits: $80,000 for vans, SUVs, and pickups, and $55,000 for all other vehicle types. Income limits for buyers also apply, with modified adjusted gross income caps set at $300,000 for married couples filing jointly, $225,000 for heads of households, and $150,000 for other filers. The IRS index provides a list of qualifying manufacturers and models based on these new rules.

Under these rules, fuel cell vehicles (FCVs) are also eligible for what is now called the “clean vehicle tax credit,” and the prior production cap of 200,000 units per automaker has been removed. Starting in 2024, the tax credit can be applied at the point of purchase, which is a convenient option for many buyers.

EVs Purchased On or After April 18, 2023

For EVs purchased on or after April 18, 2023, additional requirements regarding critical minerals and battery components come into effect. The $7,500 credit is split into two parts:

• $3,750 if the vehicle meets the critical minerals requirement.
• $3,750 if the vehicle meets the battery component requirement.

The critical minerals requirement mandates that 40% of the minerals used in the battery must be extracted, processed, or recycled in the United States or a country that has a free trade agreement with the U.S. This percentage increases by 10% each year until it reaches 80% in 2027.

To qualify for the other half of the tax credit, 50% of the battery components must be manufactured or assembled in North America as of April 18, 2023. This requirement increases annually, reaching 100% by 2029. Starting in 2024, any vehicle containing battery components made by a “foreign entity of concern” will not qualify, and this restriction will extend to critical minerals in 2025.

Thankfully, determining these percentages is the responsibility of the automakers. Buyers can still receive $3,750 if only one of these requirements is met. If a new clean vehicle was purchased before April 18, 2023, but delivered afterward, the latest rules apply.

Tax Credit for Used Clean Vehicles

Another valuable incentive under the Inflation Reduction Act is the tax credit for used clean vehicles. Used EVs and FCVs purchased in 2023 can qualify for a credit of up to 30% of the sale price, capped at $4,000. To be eligible, the vehicle must be purchased from a dealer, have a sale price of $25,000 or less, and have a model year at least two years older than the purchase year.

Other requirements include a minimum battery capacity of 7 kWh and income caps for buyers: $150,000 for joint filers, $112,500 for heads of households, and $75,000 for other individuals. The IRS provides an index of eligible used clean vehicles, which can help buyers determine whether their vehicle qualifies.

How to Claim Your EV Tax Credit

Once you have determined that your EV qualifies for a tax credit, the process to claim it is relatively straightforward. You will need to fill out IRS Form 8936, which is a brief form used to calculate the credit for qualified plug-in electric vehicles. Make sure to file it along with your federal income tax return to claim the benefit.

For married couples, heads of households, or individuals, you can use the modified adjusted gross income (AGI) from either the year you take delivery of the EV or the year before—whichever is lower. This flexibility ensures that more taxpayers have the opportunity to benefit from the clean vehicle tax credit.

Summary: Making the Most of Your EV Tax Credit

The Inflation Reduction Act has reshaped the landscape of EV tax credits, adding new layers of complexity to the process. However, the act also opens up new opportunities for consumers to save money while adopting sustainable vehicle technology. Whether you are buying a new EV, a used clean vehicle, or a fuel cell car, there are substantial tax benefits available—provided you meet the eligibility requirements.

By understanding the different rules that apply based on the purchase date and knowing which requirements your vehicle must meet, you can maximize your savings. Don’t forget to check the IRS indices for qualifying vehicles, verify assembly locations, and make use of the income cap flexibility to ensure you get the most out of your EV purchase.