The Inflation Reduction Act of 2022 includes changes related to the credits for electric vehicles. If you are in the market for an electric vehicle, it is important to understand the new requirements to maximize the benefit of this credit.
Clean Vehicle Credit
Congress passed the new Clean Vehicle Credit under Section 30D to replace the Qualified Plug-In Electric Drive Motor Vehicle Credit. The new credit applies to the purchase of new electric vehicles after August 16, 2022. This credit will apply to all electric vehicles placed in service after 2022 and prior to 2033. The maximum credit for new electric vehicles remains unchanged at $7,500. The difference between Section 30D and the former credit revolves around limitations on the taxpayer’s income, limits on the vehicle’s price and manufacturing criteria for car makers.
Income limitation: The adjusted gross income (AGI) limitation determines who can take the credit. No credit is allowed if the taxpayer’s AGI exceeds the following threshold amounts:
- For married taxpayers filing a joint return or a surviving spouse, $300,000.
- For taxpayers filing as head of household, $225,000.
- For all other taxpayers (single, married filing separately), $150,000.
Limit on vehicle’s price: The new credit establishes a threshold for eligibility based on the manufacturer’s suggested retail price (MSRP) of the electric vehicles. No credit is allowed if the MSRP exceeds the following amounts:
- Vans, SUVs, and trucks must have an MSRP below $80,000.
- All other vehicles must have an MSRP below $55,000.
Manufacturing requirements: For vehicles to qualify for Section 30D, they must have a certain percentage of both critical materials and battery components made in North America. The credit will be reduced to $3,750 if only one requirement is met. The final assembly of the vehicle must also take place in North America.
It is also important to note that for vehicles placed in service after 2023, the taxpayer can choose to utilize the credit to reduce their tax liability when filing their taxes or transfer the credit to the dealer to directly lower the cost of the vehicle for an immediate benefit.
Previously-Owned Clean Vehicle Credit
The Act also includes a new 30% credit, up to a $4,000 maximum, for purchases of previously-owned clean vehicles after 2022 and before 2033 from dealers registered with the Secretary of Treasury. To qualify for the credit, the vehicle being purchased must be at least 2 years old and have a purchase price of less than $25,000.
A qualified buyer for purposes of the credit must have AGI below a certain threshold, cannot be a dependent of another taxpayer, or have claimed a credit for a used clean vehicle during the three-year period ending on the date of sale.
Income limitation: No credit is allowed if the taxpayer’s AGI exceeds the following threshold amounts:
- For married taxpayers filing a joint return or a surviving spouse, $150,000.
- For taxpayers filing as head of household, $112,500.
- For all other taxpayers (single, married filing separately), $75,000.
Give us a call at (401) 921-2000 or fill out our online contact us form if you would like more information on how to maximize the full value of this credit.