The New EV Tax Credit

NOVEMBER 2023 UPDATE

Starting in 2024, the IRS Energy Credits Online system will allow dealers to take the EV credit directly off the purchase price of the vehicle instead of you receiving it as a credit on your tax return months later. Additionally, the government has created a new website for you to check out which vehicles qualify for the credit. Unfortunately, the listings are not complete so you will need to confirm with the individual VIN to ensure the EV you are interested in qualifies.

JUNE 2023 UPDATE

The auto industry has discovered a rather large loophole in the EV credit rules in the form of leasing. The rules define leasing as an exempt commerial activity and allow the manufacturer to receive the credit regardless of the assembly, price and income limit. The manufacturer can then pass along the credit to the consumer/lessor in the form of lower lease payments.

Not all manufacturers offer leasing (Rivian and Tesla) but if you are in the market for the Porsche Taycan (below) or any of the new Mercedes EQS models, you could save $7,500 on your lease payments.

While the rising gas prices and expanded selection of EVs (Electrical Vehicles) had you considering an EV purchase, the Biden Administration just gave you another reason with the expanded EV tax credit.

The 2022 Prosche Taycan (price as shown $191,450)

While under no scenario does the Porsche shown above qualify for an EV tax credit, there are plenty of other EVs that will. But the decision on what to buy and when to buy could cost you thousands of dollars.

The new EV tax credit rules are broken up into two very distinct periods:

  • From August 16 - December 31, 2022, the credit is available to everyone regardless of income and applies to EVs under the previous manufacturers limit (sorry, no Teslas) with final assembly in North America.

  • From January 1, 2023 - December 31, 2032, the credit rules eliminate the manufacturers limit but price caps and income limits kick in.

What EVs qualify

  • For the current period ending 12/31/2022, the Energy Department has put together this list of EVs that will likely qualify. You won’t see any Teslas but you will find the Ford F-150 Lighting and the BMW X5e. Before signing on the dotted line though, you will need to run the EV’s specific VIN through this database to ensure it complies with the North America build requirement.

  • For any purchase starting 1/1/2023, an EV price cap will limit the EV tax credit. The credit will be available as follows:

    • $7,500 for new EV trucks, vans and SUVs under $80,000

    • $7,500 for new EV cars under $55,000

    • Lower of $4,000 or 30% of purchase price for used EVs if used EV is less than $25,000, over two years old and purchased from a dealer.

Do you qualify?

  • For the current period ending 12/31/2022, there are NO limits for taxable income.

  • For the period starting on 1/1/2023, there are income limits that will eliminate many of my clients:

    • For new EVs, no credit will be allowed for an individual taxpayer whose modified adjusted gross income is more than $150,000, $225,000 for head-of-household filers and $300,000 for joint filers.

    • For used EVs, no credit will be allowed for an individual taxpayer whose MAGI is over $75,000, $112,500 for head of household filers and $150,000 for joint filers.

What should you do if you are in the market for an EV:

  • If your income has far exceeded the limits that will go into effect in 2023, you should go purchase that EV now (as long as you are okay with the limited EVs available for the credit).

  • If your income is generally right around the limit and you want that Tesla Cybertruck or another EV within the price limits, you should work with your CPA to ensure your income in the year of purchase is below the limit.

  • If you want the Porsche above, you won’t get the tax credit and you may need a marriage counselor to work out the issue it may cause sitting in your driveway.

Jeff Gullickson