The Inflation Reduction Act of 2022 was signed into law this past summer and includes new and reinstated tax laws that will affect individuals and businesses, such as the clean vehicle credit.
These new laws include a federal incentive to encourage people to purchase electric vehicles. The clean vehicle tax credit will range between $2,500 and $7,500, depending on the car’s battery capacity. However, there is an important exception to note. The “final assembly” requirement by the IRS indicates that clean vehicles that were purchased on August 16, 2022, or later must have had their final assembly in North America to meet the eligibility criteria.
As of January 1, 2023, there are also limits to claiming the credit based on modified adjusted gross income. The limits for a new vehicle are $150,000 for a single filer and married filing separately, $225,000 for head of household filers, and $300,000 for married, filling jointly. The limits for a used vehicle are $75,000 for a single filer and married filing separately, $112,500 for head of household filers, and $150,000 for married, filling jointly.
The price of an electric vehicle for sedans, hatchbacks, or wagons must be under $55,000, or $80,000 for a van. Pre-owned vehicles will also now qualify for the credit. The previous cap on automakers selling more than 200,000 vehicles in the United States has also been removed as of January 1, 2023, making some of the manufacturers such as Tesla and General Motors vehicles eligible again. These popular electric vehicle manufacturers had previously sold more than 200,000, making them ineligible for buyers to claim the credit. Also, beginning in 2024, the IRS will allow taxpayers the option to transfer the credit to the dealer at the time of purchase to lower the price.