At a Glance
The clean vehicle credit is a federal tax credit designed to encourage individual taxpayers and businesses to purchase and use electric-powered vehicles. On April 17, 2023, the IRS issued the 30D clean vehicle credit, outlining new critical mineral and battery sourcing requirements.
The changes in REG-120080-22 clarify battery sourcing and critical mineral rights rules. If you or your company purchase electric vehicles (EVs), understanding these new regulations is crucial for claiming the clean vehicle credit when you file your personal or business taxes.
What is the Clean Vehicle Credit?
The clean vehicle tax credit was initially established by the Energy Policy Act of 2005 and expanded in 2009 by the American Recovery and Reinvestment Act. The newest iterations of the clean vehicle credits provide an incentive for consumers who purchase qualifying plug-in electric vehicles (EVs) and certain alternative fuel vehicles, such as hydrogen fuel cell vehicles.
The amount a taxpayer can claim per vehicle depends on the vehicle’s battery capacity and the manufacturer. It is also subject to a maximum of $7,500 per vehicle.
Vehicles placed into service between January 1 to April 17, 2023:
- $417 for vehicles with at least 7-kilowatt hours of battery capacity
- $417 for every kilowatt hour of battery capacity beyond 5-kilowatt hours
- Up to $7,500 total
Vehicles placed into service after April 18, 2023:
Credit for Meeting Critical Minerals Requirement
Credit for Meeting Battery Sourcing Requirement
Total Credit if both Requirements are Met
Impact of the Inflation Reduction Act on Section 30D
The Inflation Reduction Act of 2022 recently amended the rules for the EV Credit for vehicles purchased between 2023 and 2032. The updated legislation provides a tax credit for clean motor vehicles placed in service in 2023 or after that meet two specific requirements for critical mineral and battery sourcing.
The recently published regulations outline crucial clarifications on the critical mineral and battery sourcing prerequisites for the Section 30D clean vehicle credit. They went into effect on April 18, 2023, immediately affecting which electric vehicles are eligible for the business tax credit.
Before purchasing an EV, we recommend that taxpayers confirm with their dealership that the car meets the new critical minerals and battery sourcing requirements.
Critical Minerals Requirement
To receive a $3,750 credit, at least 40% of the electric vehicle battery’s critical mineral components must be sourced from the U.S., sourced from a country with which the United States has a qualifying free trade agreement, or recycled in North America. This percentage will increase by 10% annually until 2027 when it becomes an 80% requirement for the components of the battery.
Battery Sourcing Requirements
50% of the value of battery components must be assembled or manufactured in North America to receive $3,750 of the total allowable $7,500 tax credit. This percentage increases by 10% annually until 2029, when it reaches a 100% requirement.
To be eligible for the EV Credit as an individual taxpayer, you must have a modified adjusted gross income below a certain threshold. This threshold is $300,000 for married couples filing jointly, $225,000 for heads of households, and $150,000 for all other filers.
To determine your eligibility, use your modified adjusted gross income from the year you purchased the vehicle or the previous year, whichever is less. If your modified adjusted gross income is below the threshold in one of the two years, you can claim the EV Credit.
Other notable changes
- The qualified two-wheel plug-in vehicle credit expires as of 12/31/22
- The previous phaseout of vehicles sold applied to vehicle manufacturers has been lifted
Per the new IRS regulations, a new clean vehicle must meet the following requirements to qualify for the EV Credit:
- Placed in service on or after January 1, 2023
- Acquired by a taxpayer for original use
- Acquired for use or lease by the taxpayer and not for resale
- Manufactured by a qualified manufacturer
- Manufactured for use on public roads, streets, and highways, have at least four wheels, and be considered a motor vehicle under the Clean Air Act
- Have a gross vehicle weight rating of fewer than 14,000 pounds
- Have a manufacturer-suggested retail price of $80,000 or less for vans, sports utility vehicles, and pickup trucks, or $55,000 or less for other vehicles
- Be powered by an electric motor with a 7-kilowatt hour battery capacity and capable of charging using an external electricity source
- Have a final assembly in North America
How to Claim the 30D EV Credit
To claim the EV credit, file Form 8963, Qualified Plug-In Electric Drive Motor Vehicle Credit, along with your federal income tax returns. When filing, you must:
- Provide the vehicle’s Vehicle Identification Number (VIN)
- Rely on the manufacturer’s certification to the IRS that the vehicle’s specific make, model, and model year qualifies for the EV Credit
- Obtain a copy of the IRS letter acknowledging the certification of the vehicle from the manufacturer
For businesses, there are basis reduction requirements if you are able to take the credit on the vehicle.
To ensure you receive the maximum EV credit, work with a qualified tax professional from Windes. Our advisors will help you take advantage of federal and local tax credits and incentives to lower your tax liability.
For individuals, the Section 25E tax credit allows you to buy a used EV for up to $25,000 and receive a 30% tax credit of up to $4,000. The credit is available to taxpayers with an income of less than $150,000 for joint filers and $75,000 for single filers.
Take Advantage of the 30D EV Tax Credit Now
You can benefit from working with an accounting professional to ensure you meet the qualifying requirements for the 30D EV tax credit. At Windes, our skilled professionals can help your business identify all applicable deductions, credits, and incentives. We will help you minimize your tax exposure and take advantage of all available tax credits.
Contact Windes today to speak with a tax advisor to understand how new EV credit regulations may impact your taxes in 2023 and beyond.