Electric Vehicle Tax Credit

Imagine a couple of hours meaning the difference between saving tens of thousands of dollars and leaving that money on the table. That could be the case for many corporations or individuals considering buying Electric Vehicles “EVs” in the next year or two.

Waiting to buy electric vehicles until after January 1, 2023 could mean forgoing $7,500 in tax credits per vehicle.

As part of the Inflation Reduction Act of 2022 (“Act”), signed into law on August 16, 2022, Congress and President Biden changed the existing tax benefits available for purchases of new and used EVs. The Act changed many major aspects of Internal Revenue Code “IRC” Section 30D which provides the requirements and funding amounts for Qualified Plug-in Electric Drive Motor Vehicles Credit. 

First, the Act removes a limit on the number of EVs that any individual manufacturer can produce and still have their vehicles qualify for the credit. Previously, the American Reinvestment and Recovery Act of 2009 limited manufacturers to being able to produce 200,000 qualified vehicles for use in the U.S. and still have consumers qualify to receive the credit. Notable U.S. EV manufacturers, Tesla and GM have been disqualified from receiving this credit for a number of years because of hitting this lifetime limit. Now their vehicles will be eligible for the credit, provided they meet new additional requirements.

Second, in order for a vehicle to qualify for the credit, the vehicle must have final assembly occur in North America and materials for batteries must not be sourced from “foreign entities of concern,” which include countries such as Russia and China. Notably, vehicles purchased before January 1, 2024 do not have to meet the sourcing requirements for battery production. Vehicles purchased either through a written binding contract before August 16, 2022, but which have not received delivery of the vehicle until after August 16, 2022 or were purchased after August 16, 2022 but before December 31, 2022 do not have to meet the final assembly requirements. The National Highway Traffic Safety Administration (NHTSA) has a VIN Decoder where consumers can search the VIN of their vehicle and see if it meets the final assembly requirement.

Third, for vehicles placed into service after December 31, 2023, used vehicles are able to qualify for the credit as well. Previously, under the American Reinvestment and Recovery Act of 2009, used vehicles were not able to qualify for the credit. Used vehicles will not be subject to the same final assembly and battery material sourcing requirements as new vehicles but will receive a reduced maximum credit value of $4,000 per vehicle. 

In addition to the requirements outlined above, there are several other considerations consumers should make before purchasing an EV with the intent of receiving maximum value from the tax credit. 

About Schneider Downs Tax Services 

Schneider Downs’ tax advisors have experience and expertise in a wide range of industries, including Automotive, Construction, Real Estate, Manufacturing, Energy & Resources, Higher Education, Not-for-profits, Transportation and others. Our industry knowledge and focus ensure the delivery of technical tax strategies that can be implemented as practical business initiatives.  

To learn more, visit our dedicated Tax Services page or reach out to your Schneider Downs tax consultant. 

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