Considering an Electric Vehicle?

Potential stalls on the fuel-efficient vehicle tax credits

BY LAURA LLOYD, CPA

TAX CREDITS FOR ELECTRIC VEHICLES have existed for years, but they’ve been revamped with the Inflation Reduction Act of 2022 (IRA). Globally, electric vehicles made up 10% of all new car sales in 2022. Adoption of electric vehicles is expected to continue to rise in 2023. With more mainstream and affordable options than ever before, more Americans are serious about making the switch. The EV tax credit attempts to ease the financial burden, but with the changes from the IRA, both the buyer and the vehicle must meet some rather rigid requirements starting in 2023.

The credit is up to $7,500 for a new vehicle and up to $4,000 for a used vehicle. The following qualifications must be met for new vehicles:

• MSRP on vans, SUVs, and pickup trucks capped at $80,000

• MSRP on sedans and passenger cars capped at $55,000

• Modified adjusted gross income of the taxpayer is capped at $300,000 if married filing jointly and $150,000 if single

• Final assembly of the vehicle must be in North America

• Battery manufacturing and source materials must meet certain US/North America levels (more information to come from Treasury Department and not enforced until it does)

Used vehicles must meet the following additional requirements:

• Purchase price of $25,000 or less

• Plug-in electric or fuel cell vehicle

• Eligible only on the first transfer of the vehicle

• Car model must be at least two years old

• Modified adjusted gross income of taxpayer is capped at $150,000 if married filing jointly and $75,000 if single

The IRS has reclassified several vehicles as SUVs from cars to help them qualify under the price limitations. Only six vehicles remain classified as cars: the BMW 330e, Chevy Bolt, Chevy Bolt EUV, Nissan Leaf, Tesla Model 3, and Volvo S60. The credit has been extended to 2032 and unlike the previous version, there are no longer manufacturing limits of 200,000 vehicles per manufacturer.

Made it this far and still hopeful that your EV purchase will lead to a credit? The IRS has a list of manufacturers and models that could qualify.

You’ll have to also verify with the Department of Treasury’s site on electric vehicles with final assembly in North America. At present, specific VIN numbers need to be researched as the same make and model of vehicles could have some meeting the North American assembly requirements and others not. To make matters more confusing, once the Treasury Department releases guidance around battery requirements, several vehicles will no longer qualify at their current manufacturing method.

Businesses can get in on the action too. Credits for electric vehicles over 14,000 pounds are up to $40,000. Credits for installing EV charging stations are up to $100,000. The Delaware Clean Vehicle Rebate Program is in effect for EVs purchased or leased before April 30, 2023.

If you’re considering purchasing an electric vehicle, it likely has more to do with its benefits to the environment than this tax credit, but with unknowns on the horizon, the time to commit to an electric vehicle and hopefully save up to $7,500 is now.

Laura Lloyd, CPA leads business and staff development at AKA Advisory, LLC, a CPA and advisory services firm.