Around one-quarter of Americans say that they are planning to purchase an electric vehicle as their next car. There are many reasons for this, including rising gas prices and the need to implement positive environmental changes. The reality is that electric vehicles emit just a third of the greenhouse gases of gasoline-powered cars.
Another reason why so many Americans are interested in purchasing an electric vehicle is due to the availability of the electric vehicle tax credit. The newly-named Clean Vehicle Credit for new electric vehicles had been due to expire at the end of 2022 but has been renewed under the Inflation Reduction Act, signed into law by President Biden in August.
In this blog post, we will highlight what you need to know about the EV tax credit, including what it is and how it will work from 2023 onwards. Let’s get started.
What Is the Electric Vehicle Tax Credit?
Put simply, the electric vehicle tax credit (now officially known as the Clean Vehicle Credit), is a tax credit offered to taxpayers who purchase qualifying plug-in electric vehicles. Another tax credit that has been extended under this law is the federal solar tax credit.
For the 2022 tax year (referring to taxes paid in 2023), the tax credit ranges from $2,500 to $7,500. The eligibility for this credit depends on a number of factors, such as whether or not you own the vehicle, the weight of the vehicle, and how many vehicles the manufacturer has sold.
Going forward in 2023, a number of changes to this tax credit will occur under the Inflation Reduction Act. For example, the new credit allows for a maximum of $7,500 for new EVs. In the case of used EVs, the credit is limited to 30% of the sale price (up to a maximum of $4,000).
How Does It Work From 2023?
A number of changes to the tax credit will go into effect from January 2023 (and last until 2032). One of these is that the manufacturing cap has been lifted, which allows more EVs to qualify than in previous years. As noted above, used cars will be eligible for the first time in 2023.
A new income eligibility cap also comes into place in 2023. In order to qualify for a new car tax credit, the limits on the modified adjusted gross income that a taxpayer can make are:
- Single – $150,000
- Head of household – $225,000
- Married (filing jointly) – $300,000
- Married (filing separately) – $150,000
The modified adjusted gross income limit for taxpayers buying used EVs is 50% of the above amounts (i.e. $75,000 for a single person).
Your Guide to the Electric Vehicle Tax Credit
The bottom line is that the electric vehicle tax credit expansion is excellent news for people planning to purchase an electric vehicle and go green. Buying an EV is a great way to play a positive role in protecting the environment while also saving money.
Like this blog post on the electric vehicle tax credit? Be sure to check out our other informative articles, such as this one, on a wide range of interesting topics here at WiseMoneyLife.com.
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