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Tax Credits for EVs: What’s New?

By
Industry Observer with Green Krist CPA PLLC 34463

If you’re in the market for a new car, the federal government would like you to purchase an electric vehicle (EV) or a plug-in hybrid EV (PHEV).

In 2022, Congress enacted the Inflation Reduction Act, which revamped and expanded tax credits for EVs purchased during 2023 and later.

As a result of the new law, there are four ways you can benefit from a federal EV tax credit:

  1. Purchase an EV and claim the clean vehicle credit.
  2. Purchase a used EV that qualifies for the previously owned clean vehicle credit.
  3. Purchase an EV for business use and claim the commercial clean vehicle credit.
  4. Lease an EV and benefit from a discount from the dealer.

To the surprise of many, leasing an EV is the most popular way to benefit from an EV credit. Almost two-thirds of all EVs are being leased instead of purchased.

Why aren’t more people purchasing an EV and claiming an EV credit for themselves? It’s likely due to the many restrictions imposed on the credits.

The clean vehicle credit is a maximum $7,500 tax credit and was designed to be the workhorse EV credit. You can claim it for EVs used for personal or business driving and claim it at the point of sale by transferring it to the dealer. Thus, you don’t have to wait until you file your tax return to get the credit.

The clean vehicle credit is subject to income caps, price caps, and domestic sourcing requirements that greatly limit availability. Currently, only 24 EV models qualify for the full $7,500 credit.

The previously owned clean vehicle credit is a maximum of $4,000 and is subject to even lower income caps than the clean vehicle credit. There is also a $25,000 vehicle price cap on the credit.

The commercial clean vehicle credit is also a maximum of $7,500 but is NOT subject to income caps, price caps, or domestic sourcing requirements. The vehicle’s depreciable tax basis (price and business use percentage) can determine the credit.

That leaves leasing an EV. With a lease, the dealer claims the $7,500 commercial clean vehicle credit for the EV and passes the savings on to you, the customer, in the form of lower monthly lease payments, lower down payments, or rebates. You do not apply for any tax credit.

Green Krist, CPA  specializes in assisting taxpayers with IRS and North Carolina Department of Revenue issues in the greater Raleigh, North Carolina area.

Show All Comments Sort:
Michael Jacobs
Pasadena, CA
Pasadena And Southern California 818.516.4393

Hello Kelly - following the money often tells another story.   Sometimes more than one. Green and otherwise.  

Dec 29, 2024 09:01 AM
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Kelly and boy thank you for your great blog on this subject.  I am old and still not sure about a EV car.

 

Dec 29, 2024 10:14 AM