Digging Into the Personal Clean Vehicle Credit

As the world shifts towards a greener future, this federal tax credit encourages the adoption of electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), and other qualified clean fuel vehicles. By taking advantage of this credit, you not only contribute to reducing greenhouse gas emissions but also experience significant savings on your tax liability. Get ready to explore the benefits of the Personal Clean Vehicle Credit and pave the way towards a cleaner and more sustainable transportation landscape.

What Is the Personal Clean Vehicle Credit?

If a taxpayer purchases a new clean vehicle, the maximum federal income tax credit for personal clean vehicle energy purchases is $7,500 once provided the critical mineral and battery component requirements are met. A credit of $3,750 is allowed, provided critical mineral requirements are met. For a clean vehicle purchased prior to January 1, 2024, the critical mineral requirement provides that the electric motor must draw electricity from a battery that has 40% of critical minerals that are extracted or processed in a country with which the United States has a free trade agreement or were recycled in North America.

The remaining $3,750 of the credit is available for a clean vehicle purchased prior to January 1, 2024, provided 50% of the components contained in the battery are manufactured or assembled in North America.

As of today, the IRS has not released guidance concerning the critical mineral and battery components.

Until the IRS provides guidance, the new clean vehicle credit the credit starts with a $2,500 base amount. The credit can increase by:

  • $417 for a vehicle which draws propulsion energy from a battery with at least 5 kilowatt hours of capacity plus;
  • an additional $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours, up to an additional $5,000 beyond the base amount.

What Is Considered a New Clean Vehicle?

A new clean vehicle for purposes of the maximum $7,500 credit is:

  • A new vehicle purchased by the taxpayer which is acquired for use (and not for resale) from a qualified manufacturer. The credit is not available for leased vehicles.
  • The vehicle must be propelled by an electric motor that draws electricity from a battery that has a capacity of not less than 7-kilowatt hours and is capable of being recharged from an external source.
  • The vehicle must be treated as a motor vehicle for purposes of title II of the Clean Air Act,
  • The vehicle must have a gross vehicle weight of less than 14,000 pounds
  • The final assembly of the vehicle must occur in North America
  • · The MRSP for a new clean van, sports utility or pick-up truck cannot exceed $80,000. All other new clean vehicles cannot have an MSRP that exceeds $55,000.

Do You Qualify for the Clean Vehicle Credit?

To be eligible for the new clean vehicle energy credit, a taxpayer’s modified adjusted gross income (MAGI) in the current year or the prior year must be below $300,000 if filing as married filing joint or surviving spouse, $225,000 if filing as head of household, or $150,000 if filing as single.

For example, if a married filing joint couples MAGI for the 2022 taxable year was $275,000 but increased to $325,000 for the 2023 taxable year, the couple would still pass the AGI limitation provided a new clean vehicle was purchased in the 2023 taxable year as their 2022 MAGI was below $300,000.

Are There State Income Tax Incentives for the Purchase of a Clean Vehicle?

Many states do offer incentives for the purchase of clean vehicles. For example, Charge Up New Jersey promotes clean vehicle adoption in the state by offering incentives of up to $4,000 for purchasing or leasing new, eligible zero-emission vehicles.

How Do I Claim a New Clean Vehicle Credit?

For the 2023 taxable year, the new clean vehicle credit can only be claimed when filing an individual tax return. Starting in the 2024 taxable year, the IRS has provided the ability for individuals to transfer their eligible clean vehicle credit to the dealer, allowing individuals to receive an immediate cash benefit.

Contact Us

Are you ready to make a positive impact on the environment while enjoying financial benefits? Don’t miss out on the opportunity to claim the Personal Clean Vehicle Credit, contact Withum’s Tax Services Team.