Things are getting even more complicated when it comes to the U.S. Clean Vehicle Tax Credit.
New Requirements Effective April 18
As of April 18, 2023, new requirements for the U.S. Clean Vehicle Tax Credit are now in effect. They involve critical mineral and battery components used in electrified vehicles, specifically where they are sourced and assembled. The $7500 federal tax credit is part of the Inflation Reduction Act and falls under the IRS section code 30D.
The New Requirements
Starting Tuesday, April 18, the credit breaks down like this:
- $3,750 is available for EVs that have at least 40% of the value of the critical minerals contained in the battery extracted or processed in the United States or a country with which the United States has a free trade agreement, or be recycled in North America. The number will go up 10% every year until in 2027, when the applicable percentage is 80 percent. (Source: IRS)
- $3,750 is available if at least 50% of the battery components are manufactured or assembled in North America. This percentage also goes up each year, reaching 100% in 2029. (Source: IRS)
And this is important: The new rules apply even if you bought the vehicle before April 18th.
What The New Rules Mean
The new, tougher requirements mean fewer vehicles qualify for the full $7,500 credit and some that did qualify now don't qualify at all. In fact, the Associated Press says nine vehicles that were on the list as of January 1st no longer qualify and says that overall more than 60 electric or plug-in hybrids on sale in the U.S. won’t get any tax credits.
Eligible vehicles - $7500
Only 10 electric vehicles now qualify for the FULL credit, according to the Associated Press. Those models are the:
- Tesla Model 3 Performance
- Tesla Model Y
- Ford’s F-150 Lightning
- Chrysler Pacifica PHEV
- Lincoln Aviator Grand Touring PHEV
- Chevrolet Bolt
- Chevrolet Bolt EUV
- Cadillac Lyriq
- Chevrolet Silverado electric
- Chevrolet Equinox
UPDATE 4/19/23: While not on the initial list above, Volkswagen announced April 19th that the U.S.-assembled 2023 ID.4 is eligible for a full $7,500 tax credit this year. Read the VW Press Release →
Eligible vehicles - $3,700
The AP lists the seven models eligible for a partial credit of $3,750 as the:
- Jeep Wrangler PHEV
- Grand Cherokee PHEV
- Ford Mustang Mach-E
- Ford Escape PHEV
- Ford E-Transit
- Lincoln Corsair Grand PHEV
- Tesla Model 3 standard range RWD
The AP also reports that even though the rules are effective Tuesday, the Biden administration is taking public comments, and changes can be made later.
Credit Amount
Digging a little deeper into the numbers and qualifications, we turn to the IRS website. The amount of the credit depends on when you placed the vehicle in service (took delivery), regardless of purchase date. This information is directly from the IRS website:
For vehicles placed in service January 1 to April 17, 2023:
- $2,500 base amount
- Plus $417 for a vehicle with at least 7 kilowatt hours of battery capacity
- Plus $417 for each kilowatt hour of battery capacity beyond 5 kilowatt hours
- Up to $7,500 total
In general, the minimum credit will be $3,751 ($2,500 + 3 times $417), the credit amount for a vehicle with the minimum 7 kilowatt hours of battery capacity.
For vehicles placed in service April 18, 2023 and after:
Vehicles will have to meet all of the same criteria listed above, plus meet new critical mineral and battery component requirements for a credit up to:
- $3,750 if the vehicle meets the critical minerals requirement only
- $3,750 if the vehicle meets the battery components requirement only
- $7,500 if the vehicle meets both
A vehicle that doesn't meet either requirement will not be eligible for a credit.
Qualified Vehicles
To qualify, a vehicle must:
- Have a battery capacity of at least 7 kilowatt hours
- Have a gross vehicle weight rating of less than 14,000 pounds
- Be made by a qualified manufacturer.
- FCVs do not need to be made by a qualified manufacturer to be eligible. See Rev. Proc. 2022-42 for more detailed guidance.
- Undergo final assembly in North America
- Meet critical mineral and battery component requirements (as of April 18, 2023).
The sale qualifies only if:
- You buy the vehicle new
- The seller reports required information to you at the time of sale and to the IRS.
- Sellers are required to report your name and taxpayer identification number to the IRS for you to be eligible to claim the credit.
In addition, the vehicle's manufacturer suggested retail price (MSRP) can't exceed:
- $80,000 for vans, sport utility vehicles and pickup trucks
- $55,000 for other vehicles
MSRP is the retail price of the automobile suggested by the manufacturer, including manufacturer installed options, accessories and trim but excluding destination fees. It isn't necessarily the price you pay.
You can find your vehicle's weight, battery capacity, final assembly location (listed as “final assembly point”) and VIN on the vehicle's window sticker.
New Clean Vehicle Tax Credit Income Requirements
Don't forget about income requirements already in place. Those have not changed. Your modified adjusted gross income (AGI) may not exceed:
- $300,000 for married filing jointly or filing as a qualifying surviving spouse or a qualifying widow(er)
- $225,000 for head of household
- $150,000 for all other filers
You must also buy the vehicle for your own use, not resale, and use it primarily in the U.S.
Clean Vehicle Tax Credit Timeline
- The U.S. Treasury Department issued guidance on the Clean Vehicle Tax Credit within days of the Inflation Reduction Act being signed into law last August.
- In December, Treasury and the IRS set out key procedures for manufacturers and sellers of clean vehicles that are required for vehicles to be eligible for tax incentives.
- Treasury and the IRS then released initial guidance to provide clarity for consumers and businesses to access the credit on January 1, 2023.
- The IRS announced its revised the vehicle classification standard on February 3, 2023.
- New requirements involving critical mineral and battery components went into effect Tuesday, April 18, 2023.