IRS Offers A Host Of Car Credits
Thinking of buying a new car in 2023? The IRS is on your side with some great credits, but you have to follow the strict conditions. Read below to see if you’re eligible.
Credits for New Clean Vehicles Purchased in 2023 or Later
If you buy a new plug-in electric vehicle (EV) or fuel cell vehicle (FCV) in 2023 or after, you may qualify for a clean vehicle tax credit of up to $7,500. The Inflation Reduction Act of 2022 changed the rules for this credit for vehicles purchased from 2023 to 2032. The credit is available to individuals and their businesses.
To qualify, you must:
- Buy it for your own use, not for resale
- Use it primarily in the U.S.
In addition, your modified adjusted gross income may not exceed:
- $300,000 for married couples filing jointly
- $225,000 for heads of households
- $150,000 for all other filers
You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your modified AGI is below the threshold in one of the two years, you can claim the credit. The credit is nonrefundable, so you can’t get back more on the credit than you owe in taxes. You can’t apply any excess credit to future tax years. There are also strict rules for what kinds of vehicles are eligible. More details are available on IRS New Clean Vehicles page.
Commercial Clean Vehicle Credit
Businesses and tax-exempt organizations that buy a qualified commercial clean vehicle may qualify for a clean vehicle tax credit of up to $40,000. The credit equals the lesser of:
- 15 percent of your basis in the vehicle (30 percent if the vehicle is not powered by gas or diesel).
- The incremental cost of the vehicle.
The maximum credit is $7,500 for qualified vehicles with gross vehicle weight ratings (GVWRs) of under 14,000 pounds and $40,000 for all other vehicles.
Businesses and tax-exempt organizations qualify for the credit, and there is no limit on the number of credits your business can claim. For businesses, the credits are nonrefundable, so you can’t get back more on the credit than you owe in taxes. A 45W credit can be carried over as a general business credit.
Again, there are strict eligibility rules. More details are available on IRS Commercial Clean Vehicle Credit page.
Used Clean Vehicle Credit
In 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 used clean vehicle tax credit (also referred to as a previously owned clean vehicle credit). The credit equals 30 percent of the sale price up to a maximum credit of $4,000. The credit is nonrefundable, so you can’t get back more on the credit than you owe in taxes. You can’t apply any excess credit to future tax years.
To qualify, you must:
- Be an individual who bought the vehicle for use and not for resale
- Not be the original owner
- Not be claimed as a dependent on another person’s tax return
- Not have claimed another used clean vehicle credit in the three years before the purchase date
In addition, your modified AGI may not exceed:
- $150,000 for married filing jointly or a surviving spouse
- $112,500 for heads of households
- $75,000 for all other filers
You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your income is below the threshold for one of the two years, you can claim the credit.
There are additional important qualifications, available on the IRS Used Clean Vehicle Credit page and your R&A advisor can also provide guidance.