The U.S. House of Representatives has passed its budget reconciliation bill, dubbed The One, Big, Beautiful Bill. Among other things, the sweeping bill would eliminate clean vehicle credits by the end of 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 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, based on meeting certain sourcing requirements for 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.
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:
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:
A MAGI limit applies for the Sec. 25E credit, but with different amounts than those for the Sec. 30D credit:
You can choose to apply your MAGI from the previous tax year if it’s lower.
You can take advantage of the Sec. 30D credit only if the vehicle you purchase:
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:
The sale price for a used vehicle is determined after the application of any incentives — but before the application of any trade-in value.
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 us if you have questions regarding the clean vehicle tax credits and their availability.
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