Updated Guidance on the Clean Vehicle Tax Credit Program
by Orion Mark
ARTICLE | February 14, 2023
On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 into law which included the Clean Vehicle Tax Credit program. Since the IRA was signed into law, there has been confusion surrounding some of the new requirements for the Clean Vehicle Credit. The IRS has recently issued guidance for those new requirements. This article will provide an overview of the Clean Vehicle Tax Credit program for individual taxpayers, including recent guidance from the IRS.
The Clean Vehicle Tax Credit program modified the existing Electric Vehicle Tax Credit program by expanding the tax credits available to consumers. However, it also introduced new limitations on the credit.
The qualified Electric Vehicle Tax Credit was introduced in 2008 and offered up to $7,500 in tax credits for purchasing a qualifying electric vehicle. Unfortunately, the credits available for a manufacturer’s vehicles were phased out once the manufacturer sold 200,000 qualifying cars. The Clean Vehicle Tax Credit program lifted the 200,000 vehicle cap and is effective for eligible vehicles placed into service after December 31, 2022.
For new vehicles, the maximum tax credit is $7,500. For used vehicles at least two years old, the maximum credit is the lesser of $4,000 or 30% of the vehicle’s sale price.
There are several limitations on which cars and individuals qualify for the Clean Vehicle Tax Credit.
Placed In Service Date
A new clean vehicle is considered to be placed in service on the date the taxpayer takes possession of the vehicle.
Only cars where the final assembly is in North America (United States, Canada, and Mexico) are eligible for the Clean Vehicle Tax Credit. Since manufacturers may have multiple assembly plants, a purchaser should verify where the final assembly of a car occurred. You can check by entering a car’s Vehicle Identification Number into the National Highway Traffic Safety Administration’s VIN Decoder tool. The website will show where the vehicle was assembled at the bottom of the page.
The IRS has also created an index of vehicle makes and models that may qualify as “electric vehicles with final assembly in North America.” As of January 2023, eligible vehicles include:
|Manufacturer||Applicable Model Years||Eligible Makes/Models|
|Audi of America||2023||Audi Q5 TFSI e Quattro|
|BMW of North America||2021, 2022, 2023||BMW 330e; BMW X5 xDrive45e|
|Ford Motor Company||2022, 2023||Ford Escape; E-Transit; F-150 Lightning; Mustang Mach-E; Lincoln Aviator; and Lincoln Corsair|
|General Motors||2022, 2023||Chevrolet Bolt; Bolt EUV; and Cadillac Lyriq|
|Nissan North America||2021, 2022||Nissan Leaf S Plus; Leaf SL Plus, and Leaf SV|
|Nissan North America||2021, 2022, 2023||Nissan Leaf S; and Leaf SV Plus|
|Rivian Automotive||2022, 2023||Rivian R1S; and R1T|
|Stellantis N.V. (including Chrysler and Jeep brands)||2022, 2023||Chrysler Pacifica PHEV; Jeep Wrangler 4xe; and Jeep Grand Cherokee 4xe|
|Tesla||2022, 2023||Tesla Model 3; and Model Y|
|Volkswagen Group of America||2023||Volkswagen ID.4|
|Volvo Car North America||2022||Volvo S60|
|Volvo Car North America||2023||Volvo S60 T8|
Manufacturer’s Suggested Retail Price
There are limitations based on the total manufacturer’s suggested retail price. New trucks, vans, and SUV models must have an MSRP less than $80,000. Other new cars, like coupes and sedans, must be less than $55,000. The IRS’s list of eligible makes and models identifies each vehicle’s applicable MSRP limit. It’s important to note that certain customizations could cause an otherwise eligible vehicle to exceed the allowable MSRP. For this reason, it will be crucial for prospective buyers to ensure their purchased vehicle does not exceed the applicable MSRP, or they may become ineligible for the tax credit.
For used vehicles, the sale price must be $25,000 or less.
The IRA also included a complicated limitation based on the vehicle’s battery. This provision specified that at least 40% of the minerals and 50% of the other components of the battery must come from North America or a country that has a free trade agreement with the U.S. These percentages were scheduled to increase in future years. Unfortunately, the current Notices from the IRS do not explain or clarify these percentage requirements (or specify whether any existing vehicles would be eligible under this provision). However, the IRS has indicated that proposed regulations for these requirements are forthcoming.
While there are limitations based on the vehicle, there are also limitations based on the purchaser’s income. The Clean Vehicle Tax Credit for new vehicles is only available to taxpayers whose modified adjusted gross income does not exceed $300,000 for married couples and surviving spouses, $225,000 for a head of household, and $150,000 for all other taxpayers. The modified adjusted gross income limits for purchasers of used vehicles are $150,000 for married couples, $112,500 for a head of household, and $75,000 for other taxpayers.
The Clean Vehicle Tax Credit program was signed into law on August 16, 2022, but applies to vehicles put into service after December 31, 2022. So what about cars purchased between August 16 and December 31 of 2022? Cars purchased between August 16 and December 31 fall under the original electric vehicle tax credit program, but the vehicle’s final assembly must occur in North America to receive the tax credits.
Some consumers may have purchased a car before August 16 but had not taken possession by then. The IRS stated that if you had a binding written contract to buy a qualifying vehicle before August 16, but had not taken possession of the car by the 16th, then the purchase falls under the original electric vehicle tax credit program. This is important because the original tax credit program does not require final assembly in North America.
This article is intended to provide a brief overview of the Clean Vehicle Tax Credit and is not a substitute for speaking with one of our expert advisors. If you’d like to learn more about the Clean Vehicle Tax Credit, please contact our office.
Electric Vehicle (EV) charger federal tax credit for electric vehicle charging stations/ equipment
The federal tax credit for electric vehicle chargers originally expired on December 31, 2021. However, the IRA extends the EV charger tax incentive for ten years—through December 31, 2032. If an individual taxpayer, installs a home EV charging station, the tax credit is 30% of the cost of hardware and installation, up to $1,000. Also, beginning in 2023, the EV charger tax credit will apply to other EV charger equipment like bidirectional (i.e., two-way) chargers. This credit can be beneficial for individuals who bought an EV for personal use and did not end up being qualified for a EV credit due to assembly requirements in North America or other limitations, but they still may be eligible for EV charger credit.
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Orion Mark, CPA
Tax Senior Manager
Orion has over 13 years of accounting experience in both the private and public sectors and specializes in providing international, federal, and state tax consulting services to closely held businesses and high-net-worth individuals. He enjoys working with clients in a variety of industries, including manufacturing, real estate, construction, and tech.
Orion is a graduate of Central Washington University, with a Bachelor of Science in Accounting.