New Electric Vehicle Tax Credit FAQs

The recently passed Inflation Reduction Act (Act) features several tax changes and benefits that incentivize the migration to energy-efficient systems. This not only includes changes to commercial, industrial, and retail buildings but also to housing and vehicles.  Currently, there are an estimated 10M electric vehicles on the road representing less than 1% of the global auto stock. The combination of advancements in technology and the popularization of recharging stations, and other infrastructure modifications, is expected to result in increased energy-efficient vehicle sales.

The sales trend will be accelerated by the new federal tax credits created in the Act. Not only is there a federal incentive for new electric vehicle purchases, but there is also a lesser credit for used electric vehicles as well. While expected to drive consumer demand there are still several unanswered questions puzzling Atlanta taxpayers. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

Electric Vehicle (EV) Tax Credits

There are several new and expanded EV tax credits for individuals in the Act.

• $7,500: Under Section 30D, applies to purchases of new EVs placed in service before 2033
  • The credit is claimed along with the annual tax return.
  • Starting in 2024, taxpayers can elect to transfer the credit to the dealership and take an immediate rebate on the vehicle at the time of purchase.
• $4,000: Under Section 25E, applies to purchases of used EVs
  • This is a new credit that begins in 2023 that is the lesser of either $4,000 or 30 percent of the sales price for vehicles weighing less than 14,000 pounds.
  • It’s an immediate point-of-sale credit at the dealership that lowers the purchase price; no need for taxpayers to file a return or other tax form.

For new EVs, the higher tax credit is available immediately; however, the vehicle’s final assembly must occur in North America. More information about these credits is below.

Additionally, the tax credit for EV charging equipment has been extended through 2032. It’s the same amount: 30 percent of the cost up to $1,000 for individual taxpayers and six percent or up to $100,000 per unit for commercial EV equipment. To qualify, commercial charging equipment must be placed in low-income communities or non-urban areas.

Current EV Tax Credit

For EVs purchased prior to August 16, 2022, the following requirements remain in effect.

• The tax credit ranges from $2,500 to $7,500 depending on battery capacity
• The EV must be a car, truck, or SUV
• Gross vehicle weight of less than 14,000 pounds
• Draws energy from a battery with at least four-kilowatt hours that can be recharged from an external source
• Purchased the vehicle in or after 2010
• Started driving the vehicle in the same year the credit is claimed

A lower credit is currently available for EV motorcycles.

Note that EVs purchased between August 16 and December 31, 2022, must meet final assembly requirements in the Inflation Reduction Act. This is described below.

Manufacturer Sales Cap

Under current law, EV manufacturers are limited on the number of EVs they can sell that are subject to tax credits. In 2022, that number is 200,000. Tesla and GM had already met the cap as of August 16, which means that taxpayers who purchase one of these EVs in 2022 cannot take the tax credit. They would need to wait to purchase the EV until new rules go in effect in 2023.

Starting next year and running through 2032, the manufacturer sales cap will be removed entirely.

Final Assembly

The immediate change that new EVs must be assembled in North America has many taxpayers questioning what that means and how to find out. It’s a two-step process:

• Taxpayers and car dealers can check the Department of Energy’s Alternative Fuels Data Center for a list of the model year 2022 and 2023 EVs that likely qualify. This list shouldn’t be taken as final, though.
  • Manufacturers including Audi, BMW, Chevrolet, Chrysler, Ford, GMC, Jeep, Lincoln, Nissan, Rivian, Tesla, and Volvo are on the list. Some manufacturers have already met the sales cap under current law.
• Final determination can be made by checking the EV’s vehicle identification number (VIN) against the National Highway Traffic Safety Administration VIN Decoder At the bottom of the results page, the Plant Information section will list the building plant and country for final determination.

EVs Purchased Before August 16

If a taxpayer had a written contract to buy an EV before August 16, 2022 – the date the Inflation Reduction Act was passed – the higher credits and other changes don’t apply. This is true even for taxpayers whose contracts were executed prior to August 16 but didn’t take possession of the vehicle until after that date.

Taxpayers who buy and/or enter into a contract to buy an EV between August 16 and December 31, 2022 would fall under the new regulations; however, the only immediate change this year involves the requirement for final assembly in North America. Other changes will take effect beginning in 2023, including the change in manufacturing caps on vehicles sold.

Income and EV Cost Limits

In 2023, there will be income and EV cost limitations in place to qualify for the tax credits.

The Manufacturer Suggested Retail Price (MSRP) of new EVs cannot exceed $80,000 for trucks and SUVs and $55,000 for other vehicles to qualify for the full tax credit. Used EVs cannot exceed $25,000, the vehicle must be at least two years old, and with a battery capacity of at least seven kilowatts.

Taxpayer income limits for used EVs are $75,000 (single), $112,500 (head of household), and $150,000 (married filing jointly). The Section 25E tax credit can only be claimed once per vehicle and taxpayers are limited to using the credit only once every three years.

Commercial EV Tax Credits

A new tax credit under Section 45W applies to commercial EVs between 2023 and 2032. The credit is equal to the lesser of 30 percent of the sales price or incremental vehicle cost, which is the difference between the purchase price and a comparable internal combustion engine (ICE) vehicle.

The maximum tax credit is $7,500 for vehicles weighing less than 14,000 pounds and $40,000 for vehicles that weigh more than 14,000 pounds. Battery and critical mineral sourcing requirements don’t apply to commercial EVs.

Contact Us

The newly announced federal tax credits are welcome news for many consumers already considering the purchase of an EV. Despite the clarity provided above, more guidance is expected to be released later this year. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.