Clean Vehicle Credit

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If you are thinking of buying a new car in 2023 or later and you are considering a clean vehicle that runs on electricity, hydrogen, or natural gas, you should know that you may be eligible for a federal tax credit that could save you money.

The tax credit for new clean vehicles was introduced in 2021 as part of the American Clean Energy and Security Act and can be claimed for a clean vehicle placed in service on or after January 1st, 2023 and that you aquired for original use (meaning that nobody else used the car for any purposes). The credit is designed to encourage consumers to switch to more environmentally friendly modes of transportation and reduce greenhouse gas emissions.

How Do I Know If My Car Qualifies For The Credit?

Before purchasing a vehicle you should ask the dealer if the car you are interested in qualifies for the new clean vehicle credit and for what amount. The maximum credit amount that can be claimed for a clean vehicle is $7,500. Depending on the specifications of the vehicles, there might be some cars that qualify for less. Thus, you might want to look for a vehicle that qualifies for the maximum amount of the credit. Furthermore, when a dealer sells you a new clean vehicle, they need to provide you and the IRS a report; this report should include:

    • the buyer’s name and taxpayer identification number,
    • the dealer’s name and identification number,
    • date of the sale and the sales price,
    • the Vehicle Identification Number (VIN) of the vehicle, unless the vehicle doesn’t have a VIN according to U.S. Department of Transportation rules,
    • the battery capacity of the vehicle,
    • confirmation that the buyer is the first user of the vehicle,
    • the maximum clean vehicle credit that the buyer can claim for this vehicle,
    • a declaration under penalties of perjury from the seller,
    • the credit that the dealer provided to the buyer (this starts in 2024).

It Is Important To Know

  • the credit is available for both individuals and businesses,
  • you can not buy the vehicle for resale purposes,
  • if you order a new clean vehicle in one year, but you receive it next year, you claim the credit when you place the vehicle in service, meaning in the year you receive it,
  • the credit is not avilable for vehicles exceeding certain price levels (for example for vans, SUVs, pick-up trucks the MSRP of the vehicle can not exceed $80,000), make sure to check with your dealer if the car qualifies for the credit and for how much,
  • the vehicle must be used primarily in the U.S.

What Are the Limits?

Before buying the vehicle it is important to review your tax return information. That is because you can claim the credit only if your modified adjusted gross income (AGI) is not more than:

    • $300,000 if you’re married and filing jointly or if you are filing as qualifying surviving spouse or qualifying widow(er),
    • $225,000 if you are filling as head of a household,
    • $150,000 for everyone else.

You can use your modified AGI from either the year you get the vehicle or the previous year, whichever is lower. If your modified AGI is below the limit in one of these two years, you can claim the credit. However, the credit is nonrefundable. This means you can’t get back more in credit than you owe in taxes. As an individual, you can’t carry over any excess credit to future tax years. If the credit is claimed for a business on Form 3800 General Business Credit, it follows the carry back and carry forward rules of this form.

You should check the IRS’ website for any updates or changes to the rules for the new clean vehicle credit.

Taxes are complicated, especially if you have a business. If you need help with your business books, tax planning and filing your taxes, we are here to help. Click here to schedule an appointment.

This material is for informational purposes only. It does not constitute tax, legal or accounting advice.