As you have probably heard by now, in order to combat climate change, it is in everybody’s best interest to transition away from fossil fuels towards more renewable energy sources as fast as possible – essentially we need to “electrify everything”. On an individual scale, electrification can simply improve your quality of life, and there are three big reasons why. You will save money (lots of it); improve your health, safety, and comfort; and increase your energy independence. All of these could be elaborated on in great detail, but right now let’s focus on the first, saving money. While electric appliances and vehicles are already becoming more affordable than fossil-fueled machines, thanks to new federal policy, the financial decision is becoming much easier to make.
On August 16th, 2022, Joe Biden signed the Inflation Reduction Act (IRA) into law. Immediately, the bill made history as the largest investment toward addressing climate change in U.S. history, aimed at raising $731 billion dollars total, including $47 billion (~6%) explicitly set aside to support the transition to “clean vehicles”. Such large-scale investments are grounded in data that shows that the transportation sector takes up 28% of all greenhouse gas emissions (GHG’s) for the United States, meaning there is enormous room for improvement.
If you want to learn more about EV momentum, read this post on Carolina’s Electric Vehicle Future. “New data from the NC Department of Transportation shows that EVs are growing fast in our state: up a whopping 64% year-on-year.“
Looking to buy an EV? Check out the EV Shopping Assistant: plugstar.com/guide
How much money is the IRA electric vehicle tax credit for?
Within the IRA, there are three separate tax credits that refer to clean vehicles: New (30D), Used (25E), and Commercial (45W) and each one has their own special requirements, so we have organized our answers per these 3 types below. The term “clean vehicles” refers to fully electric, plug-in hybrid, and fuel-cell electric vehicles.
New Electric Vehicles
The maximum amount an individual can be awarded is $7,500. It is dependent on a Critical Mineral Requirement and a Battery Components Requirement. Each of these requirements comes with $3,750, so if the vehicle meets both of these requirements you will receive a credit of $7,500. It is possible to only meet one requirement, and receive $3,750.
Used Electric Vehicles
The maximum credit amount is $4,000, or 30% of the sale price up to that amount.
Commercial Electric Vehicles
$7,500 for vehicles under 14,000 lbs and $40,000 for vehicles over 14,000 lbs
How do I get my IRA electric vehicle tax credit?
The short answer is that you can claim your Electric vehicle tax credit by filing your taxes in April – specifically Tax Form 8936 and include the vehicle identification number (VIN) for the EV you purchase. Please keep in mind that a tax credit refers to the amount of money that can be directly subtracted from the amount of taxes you already owe. Do not confuse this with tax deductions, which instead lowers the amount of an individual’s taxable income. Lastly, in order to receive these EV tax credits, consumers must first understand the requirements — who qualifies and what vehicles qualify.
Who qualifies for the IRA electric vehicle tax credit?
Basically you qualify based on income limits per below, plus how you use your vehicle.
New Electric Vehicles
< $300k for joint filers (couples)
< $225k for heads of household
< $150k for single filers
Additionally, to qualify, you must primarily drive the vehicle in the US, you must buy the vehicle for your own personal (not business) use, and it cannot be resold.
Used Electric Vehicles
< $150,000 for couples
< $112,500 for heads of households,
< $75,000 for singles or any other filers
Like the new electric vehicle tax credit, the credit is limited to individuals who bought the vehicle for use, not for resale. What’s different about the used electric vehicle tax credit is that recipients must be a transfer from a first vehicle owner ONLY, cannot be claimed as dependents on others’ tax forms. They also cannot have claimed another used clean vehicle tax credit in the three years prior to the purchase date.
Commercial Electric Vehicles
There are no income requirements for this credit. The difference is that only businesses and tax-exempt organizations qualify.
There is no limit to the number of credits a business can claim.
What vehicles qualify for the IRA electric vehicle tax credit?
There are lots of requirements so the easiest way to check the eligibility of the vehicle you bought or want to buy is to enter your vehicle information at www.fueleconomy.gov or check out the list of electric vehicle requirements below:
New Electric Vehicles
MSRP caps (the maximum cost of the vehicle in order to qualify):
- $80k for vans, SUVs, and pickup trucks
- $55k for all other vehicles
Final Assembly Requirement – it must take place in North America
- You should be able to determine if the vehicle is assembled in North America from the sticker on the windshield, listed as the “final assembly point”
- If the assembly location is not on the sticker, input the Vehicle Identification Number (VIN) on AFDC.energy.gov website. The same sticker on the windshield will have the VIN listed.
Critical Minerals Requirement – $3,750
- To meet critical minerals requirements, a percentage of the critical minerals in the battery must be manufactured or processed in the US, or with a country that the US has a free-trade agreement with.
- This percentage will increase each year, starting at 40% in 2023, and increasing to 80% in 2027.
Battery Component Requirements – $3,750
- This requirement is reliant on the value of the components in the battery, and if they are manufactured in the US. It is similar to the CMR in that it is measured through a percentage, and increased every year.
- In 2023, it is required that 50% of the value of the battery components be manufactured in the US, and in 2029, it increases to 100%.
More Electric Vehicle Information:
- Must be under 14,000 lbs
- Must have an electric motor of at least 7kWh
- Vehicles must have 4 wheels (sorry no electric bikes/motorcycles on this one)
Used Electric Vehicles
MSRP Cap
- Must be a sale price under $25,000 for all vehicles
Qualified Manufacturers:
You can find the list of qualified manufacturers for the used electric vehicle tax credit at the irs.gov website.
More Vehicle Requirements:
- The vehicle must be purchased from a licensed dealer
- Only applies to vehicles purchased after Jan 1st, 2023
- Must be at least 2 years old (the vehicle must have a model year 2 years prior to the current calendar year)
More Electric Vehicle Information:
- Must be under 14,000 lbs
- Must have an electric motor of at least 7kWh
- Vehicles must have 4 wheels (sorry no electric bikes/motorcycles on this one)
Commercial Electric Vehicles
Qualified Manufacturers:
You can find the list of qualified manufacturers for clean commercial vehicles at this irs.gov website.
Vehicle Requirements:
It must be a plug-in electric vehicle with a battery capacity of at least:
- 7 kilowatt hours if the vehicle weight is under 14,000 pounds
- 15 kilowatt hours if the vehicle weight is 14,000 pounds or more
or
- A fuel cell vehicle that satisfies the requirements of IRC 30B(b)(3)(A) and (B)
If you have more questions, please check out www.fueleconomy.gov or the IRS Fact Sheet PDF.