If you purchase a used, environmentally-friendly vehicle that meets the necessary criteria, starting from January 1, 2023, you may qualify for a tax credit known as the used clean vehicle credit. As a result, this means that you could potentially save money on your taxes because of your clean vehicle purchase.
What Should You Know?
In regards to this credit, it’s important for you to know that:
- you will receive a credit that’s 30% of the sale price; however, the maximum amount you can receive as credit is $4,000, even if 30% of the sale price exceeds this amount,
- if you purchased the vehicle before the year 2023, it won’t be considered eligible for this credit,
- you should be an individual who bought the vehicle for personal use, not to sell it again,
- you shouldn’t be the first owner of the vehicle,
- you shouldn’t have received a credit for buying a used clean vehicle in the 3 years before the date you bought this one,
- in addition, you can’t be listed as a dependent on someone else’s tax return.
What Are the Limits?
Your modified adjusted gross income (AGI) should not be more than:
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- $150,000 if you’re married and filing jointly or if you’re filing as a surviving spouse,
- $112,500 if you’re filing as head of a household,
- $75,000 for everyone else.
In conclusion, when you buy a vehicle, you can claim a credit, in some circumstances. The amount of this credit is based on your Adjusted Gross Income (AGI) from either the year you bought the vehicle or the previous year. You should use the year where your AGI is lower. If your income falls below a certain limit in either of these two years, you are eligible to claim the credit.
What Clean Vehicles Qualify for this Credit?
To be eligible, a vehicle needs to meet the following criteria:
- you purchased the vehicle from a dealer,
- it should cost $25,000 or less,
- the model year of the vehicle should be at least 2 years older than the year you’re buying it; so, if you’re buying in 2023, the vehicle should be a 2021 model or older,
- the vehicle should not have been sold to a qualified buyer after August 16, 2022,
- the vehicle’s gross weight should be less than 14,000 pounds,
- it should be a Fuel Cell Vehicle (FCV) or a plug-in Electric Vehicle (EV) with a battery capacity of at least 7 kilowatt hours,
- the vehicle should be primarily used in the United States.
To see if your vehicle is eligible for this credit, click here. If you are eligible, you should complete Form 8936 and file it with your tax return. Furthermore, it is important to know that when you purchase the vehicle, the dealer is required to provide you with a statement with the following information:
- the dealer’s name and taxpayer ID,
- name and taxpayer ID of the buyer,
- VIN of the vehicle,
- battery capacity of the vehicle,
- the sale date,
- the sales price of the vehicle,
- maximum credit allowable for the vehicle being sold,
- for sales beginning January 1st, 2024, the amount of any transfer credit applied to purchase,
- a declaration under penalties of perjury from the dealer.
In the meantime, if you encounter any issues or have any questions, we are here to help you with your accounting, QuickBooks, and tax needs. Click here to schedule an appointment.
This material is for informational purposes only. It does not constitute tax, legal or accounting advice.