Now that electric cars are becoming more popular because of their environmentally-friendly features, their demand is expected to double in the upcoming years due to the recent expansion of the Electric Vehicle (EV) Tax Credit.
So if you’re planning on getting your own electric vehicle soon, the tax credit eligibility requirements might be worth looking into.
What is the Electric Vehicle Tax Credit?
The EV Tax Credit is a type of tax break that allows electric and plug-in vehicle owners to receive a minimum of $2,500 and a maximum of $7,500 of tax credits depending on the qualifications of the vehicle. Similar to other tax credits, you can only claim it once you file your tax return. Take note that its credits are nonrefundable even if the full amount was unused, but you can use them to lower your owed taxes to zero.
On August 16, 2022, the Inflation Reduction Act (IRA) was signed into law by Pres. Biden bringing a number of significant changes that will take effect on January 2023 until 2032. Part of the major changes is that by 2024, you can use the credits to discount the purchasing price immediately when buying an electric vehicle instead of waiting until your next tax return.
Who is Qualified to claim the EV Tax Credit?
Due to the IRA, electric vehicles are now more accessible but you can only qualify for the EV Tax Credit if your income, vehicle price, battery, and final assembly meet its requirements.
One of its conditions is that the vehicle should only be sold for use or for lease, not for reselling. The owner should also be the taxpayer, and it should mostly be driven within the United States. Some of the other requirements are as follows:
You can only be eligible to claim the EV Tax Credit if your income falls within these ranges:
- Single filers – $150,000 or below
- Head of household – $225,000 or below
- Joint filers – $ 300,000 or below
2. EV and fuel-cell vehicles
Before the IRA, you can only claim full credit if you have a pure electric vehicle while plug-in hybrids or fuel-cell vehicles are only allowed less than half of the credit. But beginning July 2023, fuel-cell vehicles are eligible for the EV Tax Credit for up to $3,000 as long as it meets their qualifications.
The criteria include having a total purchasing price that doesn’t exceed $50,000, and its parts are never altered from the original manufacturer’s specifications.
3. Vehicle price range
Considering electric vehicles can be pricey, you can only be eligible for the EV Tax Credit if your car doesn’t exceed the price range of $55,000, while SUVs, vans, or trucks shouldn’t be over $80,000.
4. Used vehicles
In 2023, used electric vehicles will also become eligible for this tax credit as long as they cost $25,000 or less and the credit only covers up to 30% of its price, with a limit of $4,000. You should also keep in mind that the vehicle should only have a weight of fewer than 14,000 pounds and be at least 2 years old.
5. Manufacturer restrictions
Previously, the EV Tax Credit reduces and eventually phases out once an auto manufacturer sells more than 200,000 electric vehicles. But thanks to the IRA, this restriction is no longer observed, so huge manufacturers like Tesla, Chevrolet, and General Motors can now offer this discount again in 2023.
But to qualify for the maximum amount of $7,500 tax credits, any electronic vehicle purchased after August 16, 2022 must only be assembled in North America. Since several brands have their parts assembled from different countries, this will limit your options of vehicle brands and models to choose from.
To help you pick an eligible vehicle, the Department of Energy has a comprehensive list of models that qualify for this criteria.
6. Battery percentage
Half of the final assembly requirement of the EV Tax Credit is your vehicle should have a certain percentage of its battery assembled or made in North America. Each year, this percentage requirement will increase until electric vehicle batteries are completely built within.
For instance, the battery requirement for 2023 is set to 50% while it bumps into 60% by 2024. But by 2029 and onwards, the requirement is expected to reach 100%.
7. Critical minerals
The other half of the final assembly qualification for this tax credit is your electric car should have a specific percentage of critical minerals in its battery that’s sourced from the United States or a country that’s part of its free-trade partners.
Similar to the battery requirement, the percentage threshold increases every year where the eligibility in 2023 is 40%. But by 2027 and onwards, the requirement surges to 80%.