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Credits for New Clean Vehicles Purchased in 2023

What is a Clean Vehicle Credit?

Electric vehicles (EV) are becoming increasingly popular, not just for cost saving benefits they offer, but also because they come with very attractive tax credits. Buyers of EVs can be eligible for a clean vehicle credit of up to $7,500 (subject to certain limitations discussed below) if they bought a new, qualified plug-in EV or fuel cell electric vehicle (FCV) and placed it in service on or after January 1, 2023.

Who qualifies for the Clean Vehicle Credit?

The credit is available to individuals and their businesses. To qualify, the vehicle must be for personal use, primarily used in the U.S, and the individual’s modified adjusted gross income (AGI) must not exceed the limitations listed below.

  • $300,000 for married couples filing jointly
  • $225,000 for heads of households
  • $150,000 for all other filers

It should be noted however, that the individuals can use modified AGI from the year vehicle was delivered or the year before, whichever is less. If the modified AGI is below the threshold in 1 of the two years, the individual is eligible for the credit.

How can I claim Clean Vehicle Credit?

To claim the credit, individuals must file Form 8936 and provide their vehicle’s VIN. It is important to consult with a tax professional to ensure that you are eligible for the credits you are claiming.

Does my EV qualify for the Clean Vehicle Credit?

To qualify for the credit, the vehicle must have a battery capacity of at least 7 kilowatt hours, weight rating of less than 14,000 pounds, undergo final assembly in North America, and must be new. The seller will be required to report the individual’s name and taxpayer identification number to the IRS for the buyer to be eligible for the credit.

Additionally, the vehicle’s manufacturer suggested retail price (MSRP) cannot exceed $80,000 for vans, sport utility vehicles, and pickup trucks and $55,000 for other vehicles.

The IRS has published a list of manufacturers and models that qualify for the clean vehicle tax credit.

Does Tesla qualify for Clean Vehicle Credit?

As of the publication of this article, Tesla Inc. slashed prices globally on its electric vehicles by as much as 20%, extending an aggressive discounting effort and challenging rivals. The discounts make Tesla EVs affordable to people who were previously priced out of the market as well as make the EVs potentially eligible for the $7,500 clean vehicle credit. Prior to January 1, 2023, Congress had placed a cap that exempted vehicles from the credit once a manufacturer’s sales reached 200,000. Tesla was the first manufacturer to reach that cap. There is good news for Tesla in 2023 because the cap has been lifted by Congress.

Are used Vehicles eligible for Clean Vehicle Credit?

Starting in January 2023, a new tax credit of up to $4,000 or 30% of sales price, whichever is less, is available to individuals who buy used EV or FCV. This credit is good through 2032.

The Clean Vehicle Credit reduces income tax liability dollar for dollar. This is a huge incentive for many EV buyers as the see this as a discount off the price of the EV.

Article by Muhammad Junaid, Senior Tax Manager

Matthew John McNally
Matthew is an enrolled agent with two decades of tax planning, compliance, and advisory experience, much of it at Big Four accounting firms, where he guided clients with wide-reaching financial concerns.