Since the implementation of the Inflation Reduction Act of 2022 (IRA), there have been significant changes to the federal tax credits that offset the cost of purchasing a new electric vehicle (EV) or plug-in hybrid electric vehicle (PHEV) for personal use. This article will help you determine if you qualify for the tax credits.
To better understand the tax credit programs, it’s essential to compare the old New Qualified Plug-in Electric Drive Motor Vehicle (NQPEDMV) Credit with the new Clean Vehicle Credit (CVC) programs. We covered this topic in detail in an earlier article. However, with the recent revisions, we want to present an abridged version to help you assess your eligibility for the tax credit.
To determine which specific make and model vehicles qualify for federal tax credits, you can visit the IRS and Department of Energy’s website. This website provides information on the various tax incentives for specific makes and models of electric vehicles. Additionally, you can rely on the dealership and the documentation they provide, which specifies whether a particular vehicle meets the requirements for the tax credit programs. Most manufacturers are expected to use tax credits as sales incentives, making it easy for purchasers to identify the applicable tax credits for the vehicles available on their lots.
While we have primarily focused on federal tax credits, it’s crucial to consider state and local programs to explore other potential savings. If you reside in Oregon or California, you should review the Oregon Clean Vehicle Rebate Program (currently suspended as of May 1, 2023, until additional funding is secured) or the California Clean Vehicle Rebate Project. These rebates can provide substantial savings of up to $7,500, depending on your income level.
To ensure a clear understanding of the subject matter, here are some important terms related to the EV tax credit programs:
- Sales Cap: Initially, only the first 200,000 vehicles sold per manufacturer were eligible for tax credits. The sales cap is reviewed quarterly to track the sales status.
- Final Assembly: This refers to the point at which a manufacturer has produced a functioning vehicle ready for delivery to a dealership or importer. The final assembly must occur in North America, including the US, Canada, or Mexico. You can use the VIN lookup tool to verify this requirement.
- Critical Minerals: These are the raw resources, such as cobalt, nickel, graphite, manganese, or lithium, used in the motor’s battery. These minerals must be sourced from the US, a country with a free trade agreement with the US, or from materials recycled within the US.
- Battery Components: Refers to the underlying parts that create the motor’s battery. These components must be sourced from North America for manufacturing or assembling.
- Qualified Manufacturer: A qualified manufacturer is a vehicle manufacturer that has agreed to report VIN and other sales information to the IRS regularly.
Staying Ahead of the Curve with Aldrich
Navigating the tax credit landscape for buying an electric vehicle can be complex, given the recent changes and various federal, state, and local programs. By familiarizing yourself with the information provided in this guide, you’ll be better equipped to determine your eligibility for tax credits and other potential savings. If you have questions about your personal tax liability, let’s talk.
Remember to explore the official websites and consult with dealerships to obtain correct and up-to-date information about specific EV models and their associated incentives. We will update this buyer’s guide as the IRS releases additional guidance.
Meet the Author
Matthew Kanter, CPA, CFP®
Aldrich CPAs + Advisors LLP
Matthew Kanter joined the firm in 2017 with five years of experience working with individuals and small businesses at a small accounting firm in the Portland, Oregon area. Here at Aldrich, Matthew assists with tax compliance and planning for individuals, high net-worth clients, and estates and trusts. Matthew enjoys empowering his clients to focus on... Read more Matthew Kanter, CPA, CFP®
- Certified Public Accountant
- High-net-worth individuals
- Strategic tax planning and compliance