And the drama on ‘The One, Big, Beautiful Bill’ continues. With the passing of the U.S. House of Representatives budget reconciliation bill, the clean vehicle credits are set to end after 2025 in most cases.
If you’ve been pondering the purchase of a new or used electric vehicle (EV), you’ll want to buy sooner rather than later to take advantage of available tax credits.
Here’s what you need to know.
The current credit
The Inflation Reduction Act (IRA) significantly expanded the Section 30D credit for qualifying clean vehicles placed in service after April 17, 2023. For eligible taxpayers, it extended the credit to any “clean vehicle,” including EVs, hydrogen fuel cell cars, and plug-in hybrids, through 2032. It also created a new credit, Sec. 25E, for eligible taxpayers who buy used clean vehicles from dealers. That credit equals the lesser of $4,000 or 30% of the sale price.
The maximum credit for new vehicles is $7,500, provided the vehicle meets certain sourcing requirements for both 1) critical minerals and 2) battery components. Clean vehicles that satisfy only one of the two requirements qualify for a $3,750 credit.
The Sec. 30D and Sec. 25E credits aren’t refundable, meaning you can’t receive a refund if you don’t have any tax liability. In addition, any excess credit can’t be carried forward if it’s claimed as an individual credit. A credit can be carried forward only if it’s claimed as a general business credit.
If you’re eligible for either credit (see below), you have two options for applying it. First, you can transfer the credit to the dealer to reduce the amount you pay for the vehicle (assuming you’re purchasing the vehicle for personal use). You’re limited to making two transfer elections in a tax year. Alternatively, you can claim the credit when you file your tax return for the year you take possession of the vehicle.
Buyer requirements
To qualify for the Sec. 30D credit, you must purchase the vehicle for your own use (not resale) and use it primarily in the United States. The credit is also subject to an income limitation. Your modified adjusted gross income (MAGI) can’t exceed:
- $300,000 for married couples filing jointly or a surviving spouse,
- $225,000 for heads of household, or
- $150,000 for all other filers.
If your MAGI was less in the preceding tax year than in the year you take delivery of the vehicle, you can apply that amount for purposes of the income limit.
Note: As initially drafted, the GOP proposal would retain the Sec. 30D credit through 2026 for vehicles from manufacturers that have sold fewer than 200,000 clean vehicles.
For used vehicles, you similarly must buy the vehicle for your own use, primarily in the United States. You also must not:
- Be the vehicle’s original owner,
- Be claimed as a dependent on another person’s tax return, and
- Have claimed another used clean vehicle credit in the preceding three years.
A MAGI limit applies for the Section 25E credit, but with different amounts than those for the Section 30D credit:
- $150,000 for married couples filing jointly or a surviving spouse,
- $112,500 for heads of household, or
- $75,000 for all other filers.
You can choose to apply your MAGI from the previous tax year if it’s lower.
Vehicle requirements
You can take advantage of the Sec. 30D credit only if the vehicle you purchase:
- Has a battery capacity of at least seven kilowatt hours,
- Has a gross vehicle weight rating of less than 14,000 pounds,
- Was made by a qualified manufacturer,
- Underwent final assembly in North America, and
- Meets critical mineral and battery component requirements.
In addition, the manufacturer suggested retail price (MSRP) can’t exceed $80,000 for vans, sport utility vehicles, and pickup trucks, or $55,000 for other vehicles. The MSRP for this purpose isn’t necessarily the price you paid. It includes manufacturer-installed options, accessories, and trim but excludes destination fees.
To qualify for the used car credit, the vehicle must:
- Have a sale price of $25,000 or less, including all dealer-imposed costs or fees not required by law (legally required costs and fees, such as taxes, title or registration fees, don’t count toward the sale price),
- Be a model year at least two years before the year of purchase,
- Not have already been transferred after August 16, 2022, to a qualified buyer,
- Have a gross vehicle weight rating of less than 14,000 pounds, and
- Have a battery capacity of at least seven kilowatt hours.
The sale price for a used vehicle is determined after the application of any incentives, but before the application of any trade-in value.
Don’t forget the paperwork
Form 8936, “Clean Vehicle Credits,” must be filed with your tax return for the year you take delivery. The form is required regardless of whether you transferred the credit or chose to claim it on your tax return. Contact The CJ Group’s Tax Experts if you have questions regarding the clean vehicle tax credits and their availability.
