Explanation of the Electric Vehicle Tax Credit
With rising gas prices and new car incentives every year, there has never been a better time to investigate electric vehicles. Making the conversion is now more affordable than ever because of the recently enhanced electric vehicle tax credit, which serves as an additional incentive.
While the 2022 Inflation Reduction Act did not completely innovate the federal electric car tax credit, it did broaden its future implications. The goal of the new legislation is to increase consumer access to the electric vehicle tax credit.
Are you thinking about investing in an electric car? The new regulations are a little complex and subject to change in the future. Discover what the EV tax credit may accomplish for you by reading on.
What’s the Process for the New Electric Car Tax Credits?
In 2022, the federal EV tax credit will contribute $7,500 to the price of a new electric vehicle. When you file your taxes, a tax credit will directly lower the amount of money you owe. In essence, the credit lowers the cost of the car by paying off the $7,500 balance you owe on your tax return.
A $4,000 tax credit will also be made available for buying specific secondhand electric vehicles starting in January 2023.
Requirements for Vehicles to Qualify for the Credit
The car must be assembled in North America to be eligible for the electric vehicle tax credit in 2022. A list of electric vehicles that are likely to satisfy this condition of the Clean Vehicle Credit has been supplied by the US Department of Energy. Additionally, they offer a method for verifying a car’s eligibility by providing the VIN.
Manufacturer sales caps are another restriction on the credit till the end of 2022. Once a manufacturer has sold 200,000 or more electric vehicles, tax benefits are no longer accessible. Therefore, until 2023, EVs from more reputable brands like Tesla and Chevrolet won’t be eligible for the credit.
Do Brand-New Automobiles Qualify for the EV Tax Credit?
The criteria for new cars starting in 2023 are as follows:
- A vehicle that is an electric or plug-in hybrid electric
- Critical minerals and battery parts must be sourced primarily from the United States or a recognized trading partner.
- For four-wheel trucks, vans, and SUVs, the manufacturer’s suggested retail price must be $80,000 or less.
- MSRP of other automobiles is $55,000 or less.
What Criteria Apply to Used Cars When Applying for the Credit?
Starting in 2023, the following criteria must be met to qualify for the tax credit for used electric vehicles:
- North American final assembly
- S. and trading partners’ sources for minerals and battery parts
- $25k maximum price for purchases
- Purchased for personal use from a dealer
- Only one EV credit claim per car may be made over its lifespan.
Limitations on Personal EV Tax Credit Eligibility
Is the EV tax credit available to me? Starting in 2023, your income must be at or below a set amount to qualify.
Your modified adjusted gross income cannot surpass:
- $150,000 for a single person
- $225,000 for a household head
- $300,000 for married couples filing jointly
The restrictions for a used car are as follows:
- $75,000 for a single person
- $112,500 for a household head
- $50k for a married couple filing jointly
If I Purchased My Car Before the IRA Passed, Is the EV Tax Credit Refundable?
Before the IRA was approved, did you make a written agreement to purchase an electric vehicle? The final assembly in the United States requirement is not necessary if you can qualify for a tax credit under the old regulations.
If the manufacturer has not reached the 200,000 vehicle cap, you will only be able to access the $7,500 for new cars.
The EV tax credit is refundable, though. The electric car tax credit is a non-refundable tax benefit, regardless of when you claim it. You won’t receive a cheque for the remaining balance if your tax debt is under $7,500.
How to Apply for the Tax Credit for Electric Vehicles
Now that you know where to look for eligible vehicles, how do you apply for the EV tax credit? How can you be sure you receive the credit that has been promised?
A system that enables vehicle sellers to give you the credit up front will be in place by 2024, according to the IRS and the Department of the Treasury. Additionally, this ought to bring down the vehicle’s sticker price. You must include your purchase in your tax return to collect the credit up until that point.
Here’s how to use the EV tax credit on your upcoming tax return in 2022.
- Before you complete the transaction, check your vehicle’s eligibility.
- To verify that your car is eligible, request a letter of certification from the car dealer.
- Keep all of your documents and receipts.
- Put IRS Form 8936 in with your individual 1040 return and fill it out.
With the Help of an Online CPA, Stay Current on Tax Credits
The IRA is now a legal document. However, some provisions relating to the electric vehicle tax credit won’t go into effect until 2023 or later. The regulations are intricate, making it challenging to remember which rules are still being changed and when.
Consider dealing with an accounting expert who can assist you in staying current with new legislation rather than attempting to make sense of it all on your own. They can maximize your tax advantages and respond to any inquiries you may have concerning the EV tax credit. You can rely on the pros at Your Part Time Accountant to help you minimize your expenses and file for the credits and deductions you are entitled to.