Electric vehicle tax credit 2023: What you need to know

Electric vehicle tax credit 2023: What you need to know

10. FAQ

How does the EV Charger Tax Credit work?
If you are installing an EV charger at your home, the federal credit is typically 30% of the cost of the charger or $1,000, whichever is less. For those who want to install an EV charger in a business or investment property, the credit is typically 30% of the cost of the charger or $30,000, whichever is less. You can claim the EV charger tax credit the following year on your income taxes using IRS Form 8911. Some states may have additional incentives for installing EV chargers, so it’s worth checking out this list maintained by the DOE. Your local utility company may also have an incentive to install an EV charger.

How much can you write off for an electric car?
Technically, the write-off is a tax deduction, whereas the federal EV tax credit of up to $7,500 is just that – a tax credit. The difference is that the $7,500 write-off reduces your taxable income by that amount before the tax is calculated, while the $7,500 credit means you pay $7,500 less in tax than you otherwise would have. In case that didn’t clear things up, just remember that for a given dollar amount, a tax credit means a lot more money in your pocket than a write-off. The maximum federal tax credit of $7,500 on an eligible electric vehicle is effectively a handout of $7,500 to you, which is more than you would get if you just subtracted $7,500 from your taxable income. It’s also worth checking out this list of state EV incentives put together by the DOE to help you maximize the benefits of buying an EV.

How do federal tax credits work for EVs?
To qualify for the full $7,500 federal EV tax credit, the EV you buy must be brand new and assembled in North America. In addition, increasingly stringent geographical requirements regarding the composition and production of car battery packs are being phased out. Read our full article for latest details. As of 2024, the way you claim the federal tax credit for EVs is by using IRS Form 8936, which you submit to the federal government as part of your annual taxes. From 2024 forward, you’ll have the option of transferring your federal EV tax credit to an eligible sales dealer and receiving the amount of the credit as a rebate on the car, as opposed to waiting for tax season.

Was there any fine print for previous EV tax incentives?
Yes. One rule limited the federal tax credit to the original buyer of a qualified EV or plug-in hybrid. There were other conditions:

  • If you were leasing a vehicle, the credit rests with the manufacturer who offered the lease because the manufacturer was the actual owner of the car. In most cases, the tax credit was included in the cost of the lease, so the customer would benefit to some extent.
  • The credit was not applicable to an electric vehicle purchased for the purpose of resale. However, this is a gray area, and it would be hard for the authorities to prove it.
  • The vehicle was to be used primarily in the United States.
  • Plug-in and battery electric vehicles had to be manufactured by qualified manufacturers to be eligible for the full $7,500 credit.
  • Plug-in hybrid and battery electric vehicles must also have battery packs that are rated for at least 4 kWh of energy storage and capable of recharging from an external source.
  • Manufacturers were not required to certify to the agency that vehicles met requirements in order to qualify for the various credits. For vehicles listed on the Department of Energy’s site or the IRS list of eligible vehicles, a buyer can generally rely on the manufacturer’s representation that the vehicle was eligible. That statement may be in writing or on the company’s website. The same goes for electric motorcycles, plug-in and EV conversions, three-wheel EVs and low-speed EVs.

Are there tax credits from states or other sources?
Yes. While federal tax credits for plug-in and natural gas vehicles get the most mention, there are also dozens of state and territory incentives for plug-in vehicles and the use of alternative fuels. Many states have a dozen or more programs. However, many only apply to businesses. Some credits come in the form of waivers from fees and inspections. There are other non-monetary incentives such as carpool lane access and free parking.

In many states, retail buyers may receive some cost relief in the form of tax credits, rebates, or reduced vehicle taxes or registration fees for purchasing qualifying alternative-fuel or electric-drive vehicles.

For example, in California, people who buy or lease a new electric car can get a $750 cash rebate. This is in addition to the federal tax credit, and the tandem could reduce the car’s effective out-of-pocket cost by up to $8,000. Plug-in hybrids are a little different. Because they have smaller batteries and burn gasoline part of the time, rewards are offered on a sliding scale based on battery size, up to $750 under California’s Clean Fuel Rewards Program.

The US Department of Energy also has an interactive chart of state incentives. It’s a good idea to be sure of available state and local incentives before making a purchase. Just because a state has a program doesn’t mean it will continue indefinitely.

How about fuel cell cars?
Hydrogen fuel cell electric vehicles qualify for incentives in some states and are explicitly mentioned as qualifying vehicles in the Inflation Reduction Act. Take a look at the US Department of Energy website to see the latest hydrogen laws and incentives.

How did the previous Electric Vehicle Tax Credit work?
The previous federal tax-credit incentive was up to $7,500 for anyone whose tax bill was $7,500 or more the following year. Let’s say you bought a Hyundai Ioniq 5 EV or other qualifying vehicle and you owe $6,000 in income tax for that year. That’s all you’ll get; The IRS will ignore the remaining $1,500. If you purchased an EV in 2022, you must complete and file IRS Form 8936 with your federal tax return to claim the credit. If you’re leasing, the tax credit will go to the finance company, not you. The car manufacturer will include a credit in the cost of the lease to reduce your monthly payment, but it is not mandatory.

Are There Still Federal Tax Credits for Electric Cars in 2023?
Yes, but it depends on when you bought. Those who purchased an eligible electric car prior to adoption of the Inflation Reduction Act on August 16, 2022 should qualify for a previous federal tax credit of up to $7,500. The exceptions are Tesla, Toyota and General Motors, whose tax credits were set to expire in 2022 but return in 2023. The previous tax credit was also available on fuel cell electric vehicles and plug-in hybrid electric vehicles, but the amount varied depending on battery size. There are very few cars eligible for the EV tax credit in 2023 after the Inflation Reduction Act, but they do exist and you can check out the list in this article.

Are There Tax Credits for Electric Cars in California?
California offers an exemption as opposed to a tax credit for qualifying vehicles. The rebate is up to $750 for electric vehicles and plug-in electric vehicles, depending on the size of the battery. Your local utility company may also offer incentives on electric vehicles, so explore all your options.

Is there a tax credit for buying a Tesla in 2023?
Yes. Tesla customers are now once again eligible for new tax credits through 2023 and beyond. That said, the vehicle must fall within the pricing rules and income requirements discussed in this article.

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