Generally speaking, the Inflation Reduction Act (IRA) improves the up to $7,500 tax credit for electric vehicles (EVs) and plug-in hybrids, but only some taxpayers will benefit from this.
It’s sticker shock. If a taxpayer’s income is too high or the vehicle is too expensive, they will not be eligible for the EV credit in 2023. First, if you are a single filer with a modified adjusted gross income (MAGI) of $150,000 or less, or $300,000 if you file jointly, you cannot claim the credit. Second, you do not qualify if the vehicle costs more than $55,000 for a passenger car or more than $80,000 for a van, SUV, or pickup truck. Keep an eye out for these dollar limits.
The resale value. Previously, EV credit was only available to new car buyers. The IRA allows for a credit of up to $4,000 when purchasing a used vehicle, but you must meet certain criteria. The credit is only available to single filers with a MAGI of no more than $75,000 or joint filers with a MAGI of no more than $150,000, and the vehicle cannot cost more than $25,000. These regulations will go into effect in 2023, so if you’re looking for a used EV, you might want to wait until next year.
Beyond the limit. Previously, credits for vehicles produced by a manufacturer began to phase out when the number of vehicles sold for domestic use exceeded 200,000. Tesla, Toyota, and GM have already surpassed the mark. The IRA repeals this rule in 2023, but it remains in effect for vehicles placed in service in 2022. This may influence your purchasing decisions at the end of the year.
The tax laws are very complex. Our short blog articles cannot cover in full all the nuances of the rules. Your specific facts may hold various opportunities and possible risks that only trained, experienced, and highly qualified tax specialists can spot. We encourage you to find such help, rather than trying to figure it all out on your own. Consider giving this marketplace a try by posting your project and signing up here.
If you are a licensed tax professional and are interested in helping others either part or full-time, or ad hoc, come on in! Happy to have you. Our marketplace has the full suite of tools to communicate with clients including compliance calendars, task and message management, and billing. You can also quickly connect to knowledgeable colleagues who can complement your services with the ones you do not provide. Register here