Everything You Need To Know about the 2024 EV Tax Credit

Purchasing an electric vehicle offers Americans the chance to reduce their carbon footprint — and it can lead to tax benefits.

According to the U.S. Energy Information Administration, combined purchases of hybrid, plug-in hybrid and battery electric vehicles in the United States jumped to 16.3% of total new light-duty vehicle sales in 2023, up from 12.9% in 2022.

What Is the Scope of the EV Tax Credit for 2024?

If you buy a new plug-in electric vehicle (EV) or fuel cell vehicle (FCV) in 2023 or after, you may qualify for a clean vehicle tax credit.

[Related:Pros and Cons of Waiting Until the Last Minute to File Your Taxes]

According to the IRS website, “At the time of sale, a seller must give you information about your vehicle’s qualifications and sellers must also register online and report the same information to the IRS. If they don’t, your vehicle won’t be eligible for the credit.”

Who Qualifies?

Taxpayers may qualify for a credit up to $7,500 under Internal Revenue Code Section 30D for purchasing a new, qualified plug-in EV or fuel cell electric vehicle (FCV). The Inflation Reduction Act of 2022 changed the rules for this credit for vehicles purchased from 2023 to 2032.

To qualify, you must:

— Buy an EV for your own use, not for resale.

— Drive it primarily in the United States.

In addition, your adjusted gross income may not exceed $300,000 for married couples filing jointly, $225,000 for heads of households and $150,000 for all other tax filers.

You can use your modified adjusted gross income from the year you take delivery of the vehicle or the year before, whichever is less, per the statute. The IRS website says, “If your modified AGI is below the threshold in one of the two years, you can claim the credit.”

Keep in mind that this clean tax credit is nonrefundable; in other words, you can’t get back more on the credit than you owe in taxes. You also can’t apply any excess credit to future tax filing years.

[READ: Can I Use AI to File My Taxes?]

What Are the Vehicle Requirements To Qualify for the Tax Credit?

Per the IRS, the EV must:

— Have a battery capacity of at least 7 kilowatt hours.

— Have a gross vehicle weight rating of less than 14,000 pounds.

— Be made by a qualified manufacturer.

— Undergo final assembly in North America.

— Meet critical mineral and battery component requirements (as of April 18, 2023).

In addition, the vehicle’s manufacturer suggested retail price can’t exceed $80,000 for vans, sport utility vehicles and pickup trucks, and $55,000 for other vehicles.

What Are the EV Tax Benefits?

First and foremost, under the 2024 rules, taxpayers can obtain an advance on the EV tax credit from their dealer when they buy the vehicle — the advance will be credited against the purchase price of the vehicle in most cases, according to Alison Flores, manager at The Tax Institute at H&R Block.

If a consumer wants to purchase a prior-owned EV, they gain tax benefits, too.

“Used electric vehicles also qualify for a tax credit,” Flores says. “In fact, there’s a new credit available for previously owned clean vehicles purchased after Dec. 31, 2022, through Dec. 31, 2032, for up to $4,000.”

She said it’s worth noting is that these considerations do not apply to leases for personal use.

“But, businesses that lease clean vehicles to consumers may qualify to claim a commercial clean vehicles credit,” she adds. “The rules for the commercial clean vehicles differ from the rules for the clean vehicle credit available for consumers.”

How Does the Vehicle’s Use for Personal vs. Business Apply?

Flores says tax credits for electric vehicles purchased from 2023 to 2032 are available to both individuals and their businesses but must be for your own personal or business use and not for resale.

[Related:Tax Credits vs. Tax Deductions]

Additionally, she says those who are self-employed or small business owners might be able to claim additional tax benefits for their EV.

“They may be eligible for regular depreciation, bonus depreciation, and a Section 179 tax deduction in the year the vehicle is placed in service,” Flores says.

Annual limits apply to these types of vehicle deductions, which may be available for businesses and self-employed individuals over five or more tax years until the entire cost is deducted.

The Clean Vehicle Credit applies to purchasers of an electric drive motor vehicle meeting certain specifications.

“The Clean Vehicle Credit can be claimed for vehicles placed in service after Dec. 31, 2022 and doesn’t apply to cars bought after Dec. 31, 2032,” Flores says.

The most current information about qualifying vehicles is available on the IRS website. But that list is subject to change as manufacturers and sellers submit information to the IRS or work with parts suppliers to meet the new requirements to qualify, Flores says.

What if You Own 2 EVs?

For new EV purchases, Flores says, you can claim the tax credit once per vehicle with no yearly limit. “So, if you buy multiple new EVs in a year, you can claim the tax credit for each purchase.”

If you buy a used EV, you can claim only the tax credit once every three years, she says. Additionally, you can claim the used vehicle tax credit only once per vehicle, meaning if you’re not the second owner, you might not be eligible for the tax savings, Flores adds.

Your State or City May Offer More Tax Credits

Several states offer EV tax credits in addition to the federal government. In general, these credits may differ in amount, as well as in vehicle and consumer eligibility.

In one example, Flores says, Colorado offers a $5,000 state tax credit for qualifying vehicle purchases. The state offers an additional $2,500 tax credit for qualifying vehicles with an MSRP less than $35,000.

Why This Tax Credit Is Important

The credit offers significant breaks for tax filers who want to own EVs.

“With the Clean Vehicle Credit, under the Inflation Reduction Act, not only do you have a chance to save money on gas by purchasing an electric car, but this credit is a dollar-for-dollar reduction of the taxes you owe and helps filers who make a move towards energy efficiency,” says Lisa Greene-Lewis, a CPA and tax expert for TurboTax.

With all of the nuances to the new electric vehicle provisions, Greene-Lewis recommends consulting with a tax expert tonavigate the process of claiming the credit.

More from U.S. News

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Should You Hire a Tax Professional This Year?

Everything You Need to Know About Claiming a Mileage Tax Deduction

Everything You Need To Know about the 2024 EV Tax Credit originally appeared on usnews.com

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