THE INFLATION REDUCTION ACT AND THE NEW REQUIREMENT TO QUALIFY FOR THE CLEAN VEHICLE TAX CREDIT

The Inflation Reduction Act of 2022 (IRA) that was signed into law on August 16, 2022, included $13 billion for electric vehicle incentives.  The IRA amended the Qualified Plug-in Electric Drive Motor Vehicle Credit, now known as the Clean Vehicle Credit, and added a new requirement for final assembly in North America that took effect on August 17, 2022. For new electric, fuel cell electric, and plug-in hybrid electric vehicles acquired, delivered, and placed in service after August 16, 2022, this final assembly requirement applies.

To qualify, an individual must buy the vehicle for own use (not for resale) and use it primarily in the U.S. & have adjusted modified gross income (AGI) under:

  • $300,000 for married couples filing jointly 
  • $225,000 for heads of households
  • $150,000 for all other filers
  • You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your modified AGI is below the threshold in 1 of the two years, you can claim the credit.

The credit is nonrefundable, so you can’t get back more on the credit than you owe in taxes. You can’t apply any excess credit to future tax years.

Under the IRA, the maximum clean vehicle credit is $7,500 per vehicle, with no limitation on the number of vehicles eligible for the credit. Dealers and consumers can follow a two-step process to check whether a vehicle’s “final assembly in North America”:

  • The Department of Energy’s Alternative Fuels data Center (AFDC) compiled a list of model year 2022 and 2023 electric vehicles that likely meet the North America, final assembly requirement: https://afdc.energy.gov/laws/inflation-reduction-act
  • To determine whether a specific vehicle’s final assembly occurred in North America, dealers and consumers should enter the 17-character Vehicle Identification Number (VIN) into the National Highway Traffic Safety Administration’s VIN Decoder tool: https://vpic.nhtsa.dot.gov/decoder/

The credit is limited by the price of the vehicle.  Vans, pickup trucks and SUVs with manufacturer’s suggested retail prices of more than $80,000 don’t qualify.  Other cars must have MSRPs no higher than $55,000.

The clean vehicle credit consists of a $3,750 credit for meeting a “critical minerals requirement” and $3,750 for meeting a “battery component requirement”.

Critical minerals requirement states that critical minerals contained in battery must be extracted or processed in the U.S., in any country with which the U.S. has a free trade agreement in effect, or recycled in North America AND is equal or greater than the applicable %.  (2022-2024: 40%, 2024: 50%, 2025: 60%, 2026: 70%).

At least 50% of the battery components must be manufactured or assembled in North America.

To claim the credit, file Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles) with your tax return. You will need to provide your vehicle’s VIN.

Learn more about our tax planning and compliance services.

Read more helpful tax tips and articles here.

About BKC

Shareholder Profiles Firm News

Resources

STAY CONNECTED Sign up to receive our newsletter