1. The Qualified Plug-in Electric Drive Motor Vehicle Credit, now known as the Clean Vehicle Credit, offers tax incentives for purchasing electric vehicles.
2. The credit amount starts at $2,500 for passenger vehicles and light trucks, with a maximum amount of $7,500.
3. The credit begins to phase out for a manufacturer’s vehicle after at least 200,000 qualifying vehicles have been sold in the United States.
4. The IRA extends the Clean Vehicle Credit through December 31, 2032 and makes changes such as applying the credit to any “clean” vehicle and eliminating the manufacturer production cap after 2022.
5. The maximum credit amount of $7,500 is now bifurcated, with $3,750 being available for meeting a critical minerals requirement and another $3,750 for meeting a new battery component requirement. – The electric vehicle (EV) tax credit has income limitations for single filers, married couples filing jointly, and heads of household based on their modified adjusted gross income (MAGI).
– Vans, pickup trucks, and SUVs with MSRPs over $80,000 do not qualify for the credit, while other EVs must have MSRPs under $55,000.
– The credit is limited to vehicles that have had final assembly in North America, in an effort to encourage domestic production.
– The IRS has a process for checking if a vehicle meets the final assembly requirement, and taxpayers purchasing qualifying EVs can claim the credit on their annual tax returns for now, but will have the option to transfer the credit to dealers at the point of sale starting in 2024. – The IRA imposes requirements for critical minerals and battery components, including where they must be processed or extracted from, as well as manufacturing and assembly location.
– The IRS will issue proposed guidance before December 31, 2022, and the percentages will increase over time, peaking at 80% of critical minerals after 2026 and 100% of battery components after 2028.
– Vehicles with critical minerals or battery components from certain countries, including China and Russia, are excluded from the tax credit.
– Automotive industry is concerned about the impact of these rules, as much of the supply chain for minerals and battery components is located in China.
– Transitional relief is available for purchasers who signed a contract for an EV before August 16, 2022, with the tax credit claimable under the rules in effect when the contract was signed.
– Manufacturer cap and final assembly requirement may apply to EV purchases made after August 16, 2022, but before January 1, 2023. – The IRA offers tax credits for used EVs and commercial EVs starting in 2023.
– The Sec. 25E credit for used EVs is up to $4,000 or 30% of the vehicle’s sale price, capped at $25,000. It is only available for EVs with model years at least two years older than the year of purchase. There are income limits for eligibility.
– The credit for commercial EVs is up to 15% of the vehicle’s basis, or 30% for vehicles not powered by gas or diesel engines. The maximum credit is $7,500 for lighter vehicles and $40,000 for heavier vehicles.
– The IRS and Treasury Department will provide more guidance on EV-related tax credits in the future.
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