By Shane D. McGrath, CPA June 2023
In a continued effort to promote the adoption of electric vehicles (EVs), recent updates to the tax code have expanded the existing tax credits while introducing new incentives. The Inflation Reduction Act extended the existing credit for the purchase of new electric vehicles, introduced a credit for purchasers of used EVs, and included a credit for the acquisition of commercial EVs. However, it’s important to note that these changes come with income limitations for claiming the credits. Let’s delve into the details of these updated tax incentives.
First and foremost, the tax credit for the purchase of a new electric vehicle has been extended. Under the Inflation Reduction Act, individuals can now claim a federal tax credit of up to $7,500, encouraging more people to transition to electric vehicles. However, it’s worth noting that income limitations have been implemented. Individuals with an adjusted gross income (AGI) above $150,000 and joint filers with an AGI above $300,000 will no longer be eligible for the tax credit. There are also price limitations on vehicles that qualify for the tax credit. These limitations aim to focus the incentives on more affordable electric vehicles. For vans, SUVs, and pickup trucks, the tax credit is available for vehicles with a purchase price of up to $80,000. For other types of electric vehicles, including sedans and compact cars, the tax credit is available for vehicles with a purchase price of up to $55,000.
In addition to the extension of the new EV tax credit, the Inflation Reduction Act introduced a credit specifically for purchasers of used electric vehicles. For a purchase of a qualified used electric vehicle (EV) or fuel cell vehicle (FCV) from a licensed dealer for $25,000 or less, the credit equals 30% of the sale price, up to a maximum credit of $4,000. Similar to the credit for new EVs, income limitations also apply to the credit for used EVs.
Recognizing the importance of sustainable transportation in the commercial sector, the Inflation Reduction Act also introduced a tax credit for the purchase of commercial electric vehicles. Businesses and tax-exempt organizations that purchase a qualified commercial clean vehicle may qualify for a clean vehicle tax credit of up to $40,000. The credit amount is the lesser of: 1) 15% of the basis in the vehicle (30% if the vehicle is not powered by gas or diesel); or 2) the incremental cost of the vehicle. The maximum credit allowed is $7,500 for qualified vehicles with a gross vehicle weight rating (GVWR) under 14,000 pounds and $40,000 for all other vehicles.
For the credit for new or used EVs purchased by individuals, taxpayers should use IRS Form 8936. As for the commercial EV tax credit, additional guidance from the IRS is expected to outline the procedures for claiming the credit.
Shane D. McGrath, CPA is with Bridges & Dunn-Rankin, LLP, an Atlanta-based CPA firm.
This article is presented for educational and informational purposes only, and is not intended to constitute legal, tax or accounting advice. The article provides only a very general summary of complex rules. For advice on how these rules may apply to your specific situation, contact a professional tax advisor.