In this newsletter, I want to discuss tax credits available when buying a car.
There are two main credits:
- New Clean Vehicle Credit
- Used Clean Vehicle Credit
Let’s start with the Used Clean Vehicle Credit:
If you buy a qualified used electric vehicle (EV) from a dealer for $25,000 or less, you may be eligible for a used clean vehicle tax credit.
The credit is equal to 30% of the sale price, up to a maximum credit of $4,000. This means your car needs to cost more than approximately $13,000 to receive the full credit.
For example, if you purchase a used Tesla priced at $22,000, you would receive a $4,000 credit, effectively reducing your out-of-pocket cost to $18,000 before fees and taxes:
How to qualify?
First, check the FuelEconomy IRS website to ensure that the vehicle qualifies for the credit. They have a list of Makes and Models that qualify.
Second, make sure you meet the following criteria:
- Be an individual who bought the vehicle for personal use and not for resale.
- Not be the original owner.
- Not be claimed as a dependent on another person’s tax return.
- Not have claimed another used clean vehicle credit in the three years before the purchase date.
Also, ensure that your modified AGI does not exceed:
- $150,000 for Married Filing Jointly
- $75,000 for Single
If you don’t qualify due to your AGI, you can contribute to a Traditional 401(k) to reduce it. If you own a business, shifting some of the income to next year or accelerating deductions this year might help you further reduce your AGI.
In addition to meeting individual criteria, a vehicle must meet the following requirements:
- Have a sale price of $25,000 or less (excluding taxes, title, and registration).
- Have a model year that is at least two years earlier than the calendar year. For example, if you buy a car in 2025, it must be a model year 2023 or older.
- Not have been transferred after August 16, 2022, to a qualified buyer.
- Be an eligible FCV (Fuel Cell Vehicle) or plug-in EV (Electric Vehicle) with a battery capacity of at least 7 kilowatt-hours.
How to claim the credit
You can apply the Clean Vehicle Tax Credit immediately toward the amount you pay for the vehicle by transferring the credit to the dealer or you can wait and claim the credit when you file your tax return.
2. New Clean Vehicle
Similar rules apply if you want to buy a new car, except for the following differences:
- The modified adjusted gross income (AGI) limits are:
$300,000 for married couples filing jointly
$150,000 for single filers
- The credit amount is:
$3,750 if the vehicle meets only the critical minerals requirement
$3,750 if the vehicle meets only the battery components requirement
$7,500 if the vehicle meets both requirements
- Additionally, the vehicle’s Manufacturer’s Suggested Retail Price (MSRP) cannot exceed:
$80,000 for vans, sport utility vehicles, and pickup trucks
$55,000 for other vehicles
You can use the FuelEconomy website to see the qualifying vehicles.
Overall, this could be a great way to save money if you decide to go with an electric vehicle. I personally really like the $4,000 used credit as the electric car already took a depreciation hit.
Any questions? Just reply back.
MC