Electric vehicles (EV) embody the saying "there is more than meets the eye" not only by advanced technology but by their valuable tax incentives that benefit both individuals and businesses. The Internal Revenue Service (IRS) defines these incentives as clean vehicle credits, home energy credits, elective pay and transferability, credit for builders of energy-efficient homes, energy-efficient commercial buildings credit, advanced energy project credit, and alternative fuel vehicle refueling property credit. Both businesses and individuals benefit from these incentives since EV’s are desirable to both audiences. Our focus in this post will be on the distinct categories of credits available under the clean vehicle credits category.

Thanks to the Inflation Reduction Act of 2022 the opening statement could not be more relevant for individuals and businesses that will benefit from the clean vehicle credit. Clean vehicle credits vary on the category the EV qualifies for. There are different requirements for each category established by the IRS. The categories are new vehicles bought 2023 or after, new vehicles bought 2022 or before, used vehicles, and commercial vehicles.

NEW VEHICLE PURCHASED 2023 OR AFTER

Qualified individuals who purchased a new, qualified plug-in EV or fuel cell electric vehicle (FCV) may receive a credit up to $7,500. The vehicle must have been purchased by the individual between 2023 to 2032. Keep in mind the IRS has communicated that the credit amount depends on when the vehicle was first used. The amount of credit for vehicles placed in-service January 1 to April 17, 2023, is dependent on the variable of kilowatt hours. Vehicles placed in-service April 18, 2023, and after must meet the critical mineral requirement for $3,750 and a battery component requirement for $3,500.

Click the link below to verify your vehicles eligibility:

https://fueleconomy.gov/feg/tax2023.shtml 

If you believe you qualify for this credit after reviewing your vehicles eligibility, please visit the IRS new clean vehicle tax credit checklist at https://www.irs.gov/pub/irs-pdf/p5866.pdf 

To be able to file Form 8936 to claim the credit, make sure to have your vehicle's VIN and time-of-sale report provided by the seller on the date of purchase.

NEW VEHICLE BOUGHT 2022 OR BEFORE

The requirements are like the new vehicles purchased 2023 or after apart from the vehicle must have an external charging source, the gross vehicle weight rating must be less than 14,000 pounds (check vehicle's window sticker), and be produced by a manufacturer that has sold no more than $200,000 EV's in the U.S. An additional requirement is necessary for vehicles purchased after August 16, 2022. The requirement is known as the final assembly requirement, and it requires the EV to undergo final assembly in North America.

Because of the additional requirement for vehicles purchased after August 16, 2022, it is important to differentiate the purchase date from the delivery date. If after December 31, 2021, and before August 16, 2022, a written binding contract was entered into to purchase the vehicle, the qualifying individual may elect to claim the credit based on the rules prior by electing the credit on their 2022 tax return. If the EV was purchased between August 16, 2022, and December 31, 2022, and received in 2023 then the category above applies.

Vehicles purchased prior to 2022 may be eligible to claim the new vehicle credit by filing an amended return. The IRS allows those qualified individuals to amend their tax return filed for the tax year possession of the EV occurred.

Visit the link below to verify if your vehicle underwent final assembly in North America. Make sure to have your vehicle's VIN.

https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit

If you believe you qualify for this credit after reviewing your vehicles eligibility, please visit the IRS new clean vehicle tax credit checklist at https://www.irs.gov/pub/irs-pdf/p5866.pdf  

USED EV's

A beam of light was brought upon individuals who have purchased used EV's on or after January 1, 2023. The IRS released Internal Revenue Code (IRC) §25E which allows qualified individuals to claim a credit up to $4,000 for the purchase of a preowned EV. The vehicle must be sold by a licensed dealer and cost no more than $25,000. It is crucial for the licensed dealer to provide the buyer with information about the EV that was reported to the IRS prior to sale because lack of this information will cause the vehicle to be ineligible for credit. This information may be found in the time-of-sale report. If a time-of-sale report was not provided at the time of purchase, contact and obtain the report from the licensed dealer that sold the vehicle.

For additional information related to individuals that may qualify, refer to https://www.irs.gov/credits-deductions/used-clean-vehicle-credit

Click the link below to verify your vehicles eligibility:

https://fueleconomy.gov/feg/tax2023.shtml 

COMMERCIAL EV's

Per IRC §45W, businesses and tax-exempt organizations that acquire a qualified commercial EV may be eligible for a credit no more than $40,000. The credit may be carried over as a general business credit for the extent the EV is claimed to be utilized for business purposes on Form 8936 or 3800. Businesses deemed to be S corporations or partnerships must file form 8936. All other businesses must file form 3800 to report the general business credit. For those that are tax-exempt organizations, form 990-T must be filed.

For additional information on how to calculate the credit and determine if the commercial EV qualifies, refer to https://www.irs.gov/credits-deductions/commercial-clean-vehicle-credit

If you have any questions or need assistance from an external accounting firm for you or your business, CFLG is here to help. Contact us at (305) 662-7272 or via email at info@cflgcpa.com