Clean Fuel Vehicle Tax Credits - An Economic Step Towards Sustainability
Governments worldwide are trying to promote the usage of clean energy sources. The usage of solar panels in households has been promoted by providing credits to taxpayers that have installed solar power generation cells to generate electricity for domestic use. The IRS has taken similar steps to promote the adoption of Electric Vehicles across the USA. Announcements have been made regarding providing a clean energy tax credit on purchasing new chargeable, plug-in electric and fuel cell vehicles. However, there are specific requirements that need to be met by the tax-payers under the inflation reduction act to avail this tax credit. Let us discuss the clean energy tax credit and how it can impact EV sales across the United States.
Background information regarding the Clean Energy Tax Credit
The previously existing rules for the credit were modified when the Inflation Reduction Act of 2022 was introduced. This act affects the rules that apply to Electric Vehicles purchased between 2022 and 2032. The valuation of the bill has been identified to be around $369 billion and was signed on the 16th of August, 2022. This bill aims to make Electric Vehicles more affordable and promote the adoption of the same. People that qualify for the tax credit in every way can get a $7,500 tax credit, and it has been stated that this tax credit is not refundable. This implies that the taxpayer, in the form of cash, cannot receive the excess tax credit available to the taxpayer. The excess tax credit available to the taxpayer cannot be carried into the next year either. The Inflation Reduction Act of 2022 mandates that the purchased vehicle be manufactured within North America for the taxpayer to receive a tax credit. To claim the Clean Vehicle Credit, you must file Form 8936 and your tax return for the year.
What’s changed since the last inflation reduction act
Several changes have been made since the last inflation reduction act to ramp up the sales of the same.
- One of the most notable changes for EV manufacturers is that the IRS has gotten rid of the 200,000 caps, allowing EV manufacturers to sell only 200,000 EVs at max, with a tax credit. This cap does not exist anymore.
- Moreover, the new inflation reduction act has also made the $7,500 tax credit for all EV purchases, which was earlier constricted to a narrow list of few cars. The Clean Vehicle Credit allows taxpayers to buy any EV and avail of the total tax credit.
- Moreover, the government has also lowered the highest AGI cap of taxpayers that can avail of this credit, setting the bar at $300,000 for married people filing taxes jointly. This prevents wealthy people from availing of the Clean Vehicle Credit.
- The maximum price of the vehicles that, when bought, entitle the taxpayer to a tax credit is $55,000. However, the average cost of an EV in the current market lies at around $66,000. This has proved problematic in the industry, and the government is slowly compelling EV manufacturers to lower the price of their products.
- The earlier inflation deduction act allowed users to avail of the Clean Vehicle Credit only if new vehicles were bought. However, the new act allows taxpayers to avail credit upon purchasing a used vehicle, as long as it is less than two years old, costs less than $25,000, and does not weigh more than 14,000 pounds.
Criteria for qualification:
To qualify for the Clean Vehicle Credit, specific qualifications need to be met by the taxpayer. Failing these might make the taxpayer eligible for the tax credit. The qualifying factors are as follows:
- Buyers that have purchased an EV must use them for their use rather than for resale within the United States.
- The Adjusted Gross Income of a taxpayer must be under $150,000 if they file their taxes individually. If the taxpayer is the head of the household, they can avail of the Clean Vehicle Credit as long as their AGI is below $225,000. However, if taxpayers file their taxes jointly with their spouse, they can avail of the tax credit as long as their AGI is below $300,000.
- For a taxpayer to be eligible for the Tax Credit mentioned above, the vehicle must be made by a qualified manufacturer and brandish a capacity of at least 7 Kilowatt hours for the battery. The vehicle should also weigh less than 1,400 pounds.
- The seller must send your Name and TIN to the IRS after the purchase so that you are eligible for the tax credit.
- The price of the EV must be below $80,000 for vans, pickup trucks, and sports utility vehicles, or $55,000 for other vehicles for the taxpayer to be able to qualify for the
Suggestions for EV buyers (Existing and potential)
As the new inflation reduction act has been in effect since January 2023, EV buyers will need help buying EVs under the prescribed price range of $55,000 for cars and $80,000 for other vehicles. If you have already bought an EV and are willing to claim the tax credit for the same, you are in luck. However, buying a new EV in 2023 under the prescribed price range might be challenging. Car dealerships often have massive markups on the MSRP of EVs, and buying a car from a dealership that keeps high markups for a $7,500 tax credit might not be beneficial for you. Therefore, you should research the market adequately before making a purchase decision. Assess the total savings you are being left with after deducting the tax credit available to you from the markups made by dealerships on the MSRP of the EV, and see if you are profiting from the purchase.
Individuals and businesses often find the tax calculation and filing processes quite hectic, and small business owners must put in a lot of time and effort to do the same. The time and effort invested by the business owner could have been used to further revenue-generating processes. Therefore, it is suggested that business owners and individuals source help from professionals that are well aware of all the tax strategies that can help their clients save on tax bills. NSKT Global does just that! A well-trained and experienced team of tax and accounts professionals work relentlessly to track all your expenses and incomes to help you develop a tax strategy suited to your finances. You can head over to the official website of NSKT Global to understand how you can benefit from the services they provide.