How to Get the Biggest Tax Break for Buying an EV: A guide on the changing rules for federal tax credits for buying electric vehicles and home chargers
The toughest roads to navigate in an electric vehicle may be the forking paths of the tax code.
EV buyers can get up to $7,500 in tax savings right at the dealership, under changes to the law that went into effect Jan. 1. By contrast those who drove an EV off the lot last year have to claim the tax credit on their 2023 tax return, which is due April 15 for most taxpayers.
Whether you are eligible for this credit—and how much—depends on a range of factors including the vehicle’s price, where it was manufactured, the date of purchase and your income. Don’t assume you’ll get it for buying any new or old EV.
The credits are incentives to go electric that Congress passed in August 2022 as part of new energy legislation. The Internal Revenue Service has been rolling out fact sheets since that spell out the details.
How can I get the full $7,500 EV tax credit?
In some ways, the 2022 law made it harder for taxpayers to get the tax credit for a new electric-vehicle purchase than in previous years. For vehicles purchased after Aug. 16, 2022, only those that had their final assembly in North America are eligible for the credit, with exceptions for some 2022 buyers.
For purchases from 2023 through 2032, however, the new law provides both more flexibility and new restrictions. The previous caps on how many vehicles per manufacturer could get the credit have ended, so some Tesla and General Motors vehicles once again qualify for 2023.
But the law also added vehicle price caps and income limits—you won’t qualify if you earn too much.
EVs must be priced below certain thresholds—$80,000 for sport-utility vehicles and pickup trucks, and $55,000 for other vehicles—to be eligible for the credit.
The credit isn’t available to taxpayers with modified adjusted gross income above certain thresholds: $300,000 for married couples filing jointly, $225,000 for heads of households and $150,000 for others. But you can use your income from the year you take delivery of the vehicle or the year before, whichever is less, to qualify for the credit.
Another rule, which took effect on April 18, 2023, limits the credit based on certain battery components and critical minerals requirements. While EVs that meet both requirements may be eligible for the full $7,500 credit, EVs that meet only one may be eligible for a $3,750 credit.
Which EVs qualify?
The Energy Department has the official list of vehicles that qualify at Fueleconomy.gov. If you bought your EV in 2023, you will need to specify whether you took delivery before April 18 or on or after April 18—when the list shrank.
The EV credits are nonrefundable, meaning filers can’t get back more than they owe in taxes. Also, filers can’t carry forward an excess credit to future tax years.
What are the new rules for 2024?
Starting this year, buyers can get the tax savings right at the dealership rather than wait until they file their tax return to get the credit. You’re transferring your credit to the dealer. The dealer must confirm that your specific vehicle qualifies and must provide you with an IRS time-of-sale report.
Taxpayers who choose the point-of-sale rebate program still must report their EV purchase on their tax return. They’ll need to provide their Social Security number to the dealer and include the car’s vehicle identification number on their tax return. If their income exceeds the income caps, they’ll have to pay back the credit.
Taxpayers can keep the rebate even if they don’t owe any taxes, according to the IRS.
Is there a tax credit for buying a used EV?
Used EVs, priced up to $25,000 and bought at a dealer, can qualify for a tax credit starting in 2023. It is 30% of the sales price, up to a maximum credit of $4,000. The credit for used EVs isn’t available to taxpayers with modified adjusted gross income above certain thresholds: $150,000 for married couples filing jointly, $112,500 for heads of households and $75,000 for others. Other restrictions apply.
Are there tax benefits to installing an EV charging system?
People buying EVs need to charge them, too. The August 2022 law revived a tax credit for residential charging systems retroactive to Jan. 1, 2022. It is $1,000 or 30% of the costs of buying or installing a residential EV charging system, whichever is less.
As of Jan. 1, 2023, the EV-charger credit is limited to certain census tracts, restricting it to taxpayers who live in low-income and rural communities, covering about two thirds of Americans. The IRS has a frequently-asked questions page, and the Energy Department has a Tax Credit Eligibility locator map where you can plug in your address to see if it is in a qualifying tract.
Claim it on Form 8911, Alternative Fuel Vehicle Refueling Property Credit.
What if I lease an EV?
If you lease an electric vehicle, the manufacturer or lender can build the federal tax credit into the cost and effectively pass on the credit as part of the lease terms.
For more details on EV credits, see the latest IRS fact sheet.
Source: Article by Ashlea Ebeling from WSJ