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Electric vehicle tax credit for 2023
If you traded in your gas guzzler for an electric model, you could save big with this tax credit.
Electric vehicles usually have a higher price tag than traditional gas guzzlers. But the federal government has a credit in place to help you go green. Here’s everything you need to know about the electric vehicle tax credit.
What is the electric vehicle tax credit?
The electric vehicle tax credit helps lower the upfront cost of buying a hybrid or electric vehicle. If you qualify, the credit lowers the amount of taxes you owe dollar for dollar.
How much is the electric vehicle tax credit worth in 2023?
The credit ranges from $2,500 to $7,500 depending on the size of your vehicle’s battery and when you took possession of it.
Electric vehicle tax credit limits for January 1 to April 17, 2023
| If my battery is this many kilowatt-hours… | …then my electric vehicle tax credit is… |
|---|---|
| 4 | $2,500 |
| 5 | $2,917 |
| 6 | $3,334 |
| 7 | $3,751 |
| 8 | $4,168 |
| 9 | $4,585 |
| 10 | $5,002 |
| 11 | $5,419 |
| 12 | $5,836 |
| 13 | $6,253 |
| 14 | $6,670 |
| 15 | $7,087 |
| 16 or more | $7,500 |
Electric vehicle tax credit limits for April 18, 2023, and after
If you take possession of a new clean vehicle after April 18, 2023, it must meet the criteria listed above, plus new critical mineral and battery component requirements. Here’s how the new credits apply:
- Up to $3,750 if the vehicle meets the critical minerals requirement only
- Up to $3,750 if the vehicle meets the battery components requirement only
- Up to $7,500 if the vehicle meets both
A vehicle that doesn’t meet either requirement will not be eligible for a credit. Find details from the IRS in Q6 under Topic A.
Limits
The electric vehicle tax credit has a few limitations to be aware of:
- The credit isn’t refundable. If this credit reduces your tax bill to $0, you won’t receive a refund if any amount is left over.
- You won’t receive the credit if you lease. The car dealership receives the credit for leased vehicles because it holds the vehicle’s title, not the customer’s.
- May come with state and local incentives. Electric vehicle incentives vary by city and state, so research your area to see if you qualify for additional credits.
Limit changes for 2023
- Used vehicles now count. Beginning January 1, 2023, if you buy a qualified used electric vehicle or fuel cell vehicle from a licensed dealer for $25,000 or less, you may be eligible for a credit of up to $4,000.
- The credit no longer phases out. Previously, the credit began to phase out once an automaker sold more than 200,000 qualifying vehicles.
Who qualifies for the electric vehicle tax credit?
This tax credit applies to individuals and businesses. To qualify, you must:
- Buy it for your own use, not for resale
- Use it primarily in the US
In addition, your modified adjusted gross income must not exceed:
- $300,000 for married couples filing jointly
- $225,000 for heads of households
- $150,000 for all other filers
If you qualify for the credit, your car manufacturer should give you a certificate explaining the make, model, year of your vehicle and how much your credit is worth.
What vehicles qualify for the electric vehicle tax credit?
To be eligible for the credit, a vehicle must meet the following criteria:
- Possess a battery capacity of at least 7 kilowatt-hours.
- Have a gross vehicle weight rating of less than 14,000 pounds.
- Be produced by a qualified manufacturer (Fuel Cell Vehicles are exempt from this requirement; see Rev. Proc. 2022-42 for further details).
- Be assembled in North America.
- Fulfill specific critical mineral and battery component requirements starting from April 18, 2023.
The sale is eligible for the credit only if:
- The vehicle is purchased new.
- The seller provides necessary information to the buyer at the time of sale and reports it to the IRS.
- Sellers must report the buyer’s name and taxpayer identification number to the IRS for the buyer to qualify for the credit.
In addition, the vehicle’s Manufacturer Suggested Retail Price (MSRP) cannot exceed:
- $80,000 for vans, sport utility vehicles and pickup trucks.
- $55,000 for other types of vehicles.
The MSRP is the price recommended by the manufacturer, including options, accessories, and trim installed by the manufacturer, but excluding destination fees. It may not reflect the actual price paid by the buyer.
Information regarding the vehicle’s weight, battery capacity, final assembly location (listed as “final assembly point”), and VIN can be found on the vehicle’s window sticker.
For a more complete list of vehicles, visit used clean vehicles, qualified commercial clean vehicles and new plug-in EVs purchased before 2023.
How to calculate the electric vehicle tax credit
Follow these four steps to calculate your electric vehicle tax credit:
- Look up your vehicle’s battery size on the manufacturer’s website or in your manual.
- Use the Electric vehicle tax credit limits 2023 chart to find out how much your credit is worth based on your battery size if your vehicle was purchased between January 1, 2023, and April 17, 2023. After April 18, additional battery and mineral requirements apply.
How to claim the electric vehicle tax credit
Use Form 8936 to calculate the electric vehicle tax credit. This form consists of three parts:
- Part one: List your car’s information, including its year, make, model, VIN and purchase date.
- Part two: Calculate how much your credit is worth if you bought your vehicle for business or investment purposes.
- Part three: Calculate how much your credit is worth if you bought your vehicle for personal use.
Once you fill out Form 8936, you’ll report your credit amount on Form 1040 if you bought your vehicle for personal use or Form 3800 if you bought it for business use. Or you can use it to pay down an existing alternative minimum tax bill if you have one.
Related tax credits or deductions
There are two other tax credits and deductions to look into if you qualify for the electric vehicle tax credit:
- Residential energy tax credit. You could save up to 26% on any solar panels or solar water heaters you bought this year.
- Property tax deduction. You could write off your vehicle registration if it includes a fee based on the value of your vehicle.
- Motor vehicle tax deduction. You could write off operational expenses if you’re self-employed and use your vehicle for work.
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Bottom line
If you bought a plug-in electric or hybrid vehicle this year, the electric vehicle tax credit is a great way to reduce your tax bill — and indirectly lower your upfront costs. But it only works if you owe taxes because none of the credit is refundable.
Before you file taxes, consider hiring a professional or shop around for an online service that can help you save the most money on taxes.
Frequently asked questions
How does the electric vehicle credit carry over?
You can’t carry over any unused portion of the electric vehicle tax credit to future years. If you can’t use it all when you claim it, you forfeit the remaining amount.
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