Individuals who purchased new electric vehicles may be eligible for a federal tax credit of up to $7,500 for tax year 2023. The credit is available to individuals and businesses. It is nonrefundable and there are numerous requirements and conditions that affect eligibility and the amount of the credit.
Eligibility
To qualify, the vehicle must have a battery capacity of at least 7 kilowatt hours, a gross vehicle weight rating of less than 14,000 pounds, and be made by a qualified manufacturer. Vehicles must also undergo final assembly in North America, which further limits the vehicles that qualify.
There are new requirements effective from April 18, 2023, which include meeting critical mineral and battery component requirements to qualify for the credit.
The vehicle’s manufacturer suggested retail price for new vehicles (MSRP) must not exceed $80,000 for vans, SUVs, and pickup trucks, and $55,000 for other vehicles.
Amount of Credit
The amount of the tax credit depends on various factors, including the vehicle’s MSRP, manufacturer, final assembly location, battery component, critical mineral sourcing, and the taxpayer’s modified adjusted gross income (MAGI). The amount of the credit also depends on when you placed the vehicle in service, regardless of purchase date.
For vehicles placed in service January 1 to April 17, 2023:
• $2,500 base amount
• Plus $417 for a vehicle with at least 7 kilowatt hours of battery capacity
• Plus $417 for each kilowatt hour of battery capacity beyond 5 kilowatt hours
• Up to $7,500 total
In general, the minimum credit will be $3,751 ($2,500 + 3 times $417), the credit amount for a vehicle with the minimum 7-kilowatt hours of battery capacity.
For vehicles placed in service April 18, 2023 and after:
Vehicles will have to meet all of the same criteria listed above, plus meet new critical mineral and battery component requirements for a credit up to:
• $3,750 if the vehicle meets the critical minerals requirement only
• $3,750 if the vehicle meets the battery components requirement only
• $7,500 if the vehicle meets both
A vehicle that doesn’t meet either requirement will not be eligible for a credit. Additionally, the taxpayer’s modified adjusted gross income (MAGI) cannot exceed certain limits. The MAGI limit for married couples filing jointly is $300,000, $225,000 for heads of households, and $150,000 for all other filers.
Used Vehicles
Used electric vehicles purchased in 2023 or after may also qualify for a tax credit of up to $4,000.
How to Claim
To claim the tax credit, individuals must file Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit, with their tax return and provide the vehicle’s VIN. Sellers must also provide certain information to the taxpayer at the time of sale and report the same information to the IRS.
All of the factors discussed above interact with each other, and the actual tax credit amount can vary based on the specific circumstances of the vehicle purchase and the taxpayer’s income. Consulting with a tax professional or referring to official IRS publications can provide more precise information regarding the tax credit for electric vehicles purchased in 2023.
Update for Tax Year 2024
For tax year 2024, the IRS plans to expand access to the tax benefit by allowing consumers to choose between claiming a nonrefundable credit on their tax returns to lower their tax bill (as described above) or transferring the credit to the dealer to lower the price of the car at the point of sale.
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