EV Credit Available at the Dealership in 2024
Effective January 1, 2024, the tax credit for electric vehicles (EVs) will be available at the car dealership—at the time of purchase. This is very exciting news for those who are considering purchasing an EV. The current process of claiming an EV credit (for a vehicle placed in service during tax years 2023 and before) requires that a taxpayer claim the credit by filing Form 8936 along with his/her tax return. The taxpayer would then receive the benefit of the credit via an increased tax refund or a reduced balance due to the IRS. Taxpayers were required to wait several months to a year after the vehicle’s purchase date to receive the EV credit, and because EVs tend to be more expensive than gas-powered vehicles, many consumers continued to purchase gas-powered vehicles rather than EVs.
After several years of less than impressive EV sales results, the government has heard the cries of taxpayers, EV manufacturers, and dealers alike. Beginning in 2024, taxpayers may now elect to receive the benefit of the EV credit at the dealership. EV credits are substantial (up to $4,000 for a qualifying used vehicle and up to $7,500 for a qualifying new vehicle), so claiming the credit at the point of sale reduces the overall sticker price of the vehicle and its monthly payment. This change will allow more taxpayers to afford to purchase EVs and reduce consumers’ financing costs associated with the purchase of a new vehicle. For those of you who are planning to purchase a vehicle soon, I recommend reading on.
Which Vehicles Qualify for the EV Credit?
“Clean energy” vehicles for the purposes of the EV credit are battery electric, plug-in hybrid, or fuel cell powered. Eligible vehicles are required to weigh less than 14,000 pounds and have a battery capacity of at least 7 kilowatt hours. As of the date of this article, 11 vehicle manufacturers have one or more qualifying vehicle models that are eligible for the EV credit: BMW, Cadillac, Chevrolet, Chrysler, Ford, Jeep, Lincoln, Nissan, Rivian, Tesla, and Volkswagen.
Eligible new vans, SUVs, and pickups are capped at a Manufacturers Suggested Retail Price (MSRP) of $80,000 and other vehicles are capped at an MSRP of $55,000. The price cap for used vehicles is $25,000. It is important to access the fueleconomy.gov website for up-to-date information on the specific vehicle models that are eligible and the credit amount that is applicable to each type of vehicle. The website is updated frequently, so it is recommended that taxpayers verify that their particular vehicle remains eligible at the date and time of purchase.
The EV sale must occur through an authorized licensed dealer that provides the appropriate paperwork to both the buyer and the IRS (private sales are not eligible for the EV credit). According to IRS guidance, the dealer will be able to determine if the vehicle’s VIN is approved or denied for the EV credit in real time using the IRS’s online system before selling that vehicle to the customer. Be sure that the dealer provides you with your copy of the submitted IRS documentation, commonly referred to as the “seller’s report”.
Which Taxpayers are Eligible for the EV Credit?
Although most of the changes to the EV credit under the Inflation Reduction Act were improvements that made more vehicles eligible, one unfortunate change is that higher income taxpayers are no longer eligible for the EV credit. A taxpayer’s modified adjusted gross income (MAGI) determines whether she is eligible to claim the EV credit on her tax return—and this calculation can usually only be accurately calculated at the time of tax preparation.
Single taxpayers with a MAGI above $150,000 for new vehicles or $75,000 for used vehicles are ineligible. Married taxpayers filing jointly with a MAGI above $300,000 for new vehicles and $150,000 for used vehicles are ineligible. Additionally, the EV credit cannot be claimed by a taxpayer who is a dependent of another. Taxpayers claiming eligibility for the EV credit election at point of sale must certify that their prior year MAGI or estimated current year MAGI is within these income limits to the best of their knowledge or belief at the time of purchase.
What Happens at Tax Time?
At tax time, the taxpayer is required to file a Form 1040 (even if he otherwise would not be required to file a tax return based on his income) that includes the Form 8936 reporting the clean vehicle credit and indicating that he elected to receive the credit at point of sale. When the return is filed, if the taxpayer’s MAGI is higher than the income limit based on his filing status, the credit is subject to recapture (repayment to the IRS)—thereby reducing the taxpayer’s refund or increasing his balance due. Taxpayers may opt out of the point of sale EV credit election if they are unsure of their MAGI and want to avoid the possibility of repaying the credit at tax time.
Another important note is that the EV credit is nonrefundable, which means that it can only offset tax liability on the taxpayer’s filed return. Thus, if a taxpayer’s return calculates that no tax is due after all of his deductions and credits are taken into account (or if his EV credit does not fully offset his tax liability), he will not receive the credit back as a refund.
Lastly, some states offer their own EV incentives, so be sure to check those out as well if you are considering an EV purchase. There is also a tax credit available for installing EV charging equipment in your home. If eligible for these incentives, be sure to save all the necessary documentation, notify your preparer of your EV purchase, and review your tax return to ensure that these additional credits are included at tax time.
If you are considering purchasing an EV in early 2024 and are not sure of your MAGI for 2023, feel free to reach out to me for assistance in estimating your 2023 tax situation before the filing season opens. You may also want to engage early for 2023 tax preparation so you can have a good faith belief whether your income is within the eligibility requirements for your filing status.