October 18, 2022   //   Tax   //   By PKF Mueller Solutions


The recently passed Inflation Reduction Act of 2022 includes changes to the credit available for electric vehicles effective January 1, 2023. If you are in the market for a clean vehicle, we should review the new rules to help you maximize your tax credit.

North American assembly requirement.

To qualify for the electric vehicle credit, the vehicle’s final assembly must occur in North America. You can check whether a particular vehicle meets this requirement by entering its vehicle identification number (VIN) into the VIN Decoder. The VIN Decoder allows a query of a particular vehicle’s VIN to identify the vehicle’s plant and country of manufacture. Some vehicles qualify for the 2022 tax credit, but checking the VIN is vital as seventy percent of electric, hybrid, and fuel cell vehicles currently available will not qualify for any tax credit.

Manufacturer limitation.

The manufacturer limitation of 200,000 electric vehicles will be eliminated on January 1, 2023; this affected a taxpayer’s ability to take a tax credit for certain vehicles like GM and Tesla.

MSRP limitation.

Starting on January 1, 2023, vehicles will not be eligible for the credit if they exceed an MSRP limit: $80,000 for vans, pickup trucks, and sport utility vehicles; $55,000 for other vehicles.

Calculation of the credit.

Under the previous rules, the base amount of the electric vehicle credit is $2,500 per vehicle. The new allowable credit increases to a maximum of $7,500 per vehicle based on a formula that increases the credit by $417 for every kilowatt hour of battery capacity in excess of five.

Under the new rules, the amount of the credit will be based on two separate requirements, each one based on where the vehicle’s battery is sourced:

  • Taxpayers get a $3,750 credit for meeting the critical minerals requirement.
  • Taxpayers also can get a $3,750 credit for satisfying the battery component requirement.

Taxpayers can satisfy one or both requirements for either a $3,750 credit (if only one requirement is satisfied) or a $7,500 credit (if both requirements are satisfied).

New qualified fuel cell motor vehicle.

Effective January 1, 2023, the credit will also be available for new qualified fuel cell motor vehicles. These vehicles are propelled by power derived from one or more cells that convert chemical energy directly into electricity by combining oxygen with hydrogen fuel, and that meets certain additional requirements. New qualified fuel cell motor vehicles must meet the North American final assembly requirement. They can qualify for either a $3,750 or $7,500 credit based on whether they satisfy one or both of the critical minerals requirements and battery components requirements.

Modified adjusted gross income limitation.

Starting on January 1, 2023, your ability to take the electric vehicle credit will be limited based on your modified adjusted gross income (MAGI). The threshold amount is $300,000 for married taxpayers filing a joint return or a surviving spouse and $150,000 for taxpayers single or married filing separately.

2023 purchases.

The IRS is developing guidance that should be available by year-end 2022 to simplify and clarify the “new clean vehicle” tax credit and other energy tax credits for 2023 and later years. Many of the new energy credits of various types can be transferred to another taxpayer under the Inflation Reduction Act, including the Clean Vehicle Tax Credit.

Recap of the current electric vehicle tax credit rules and the January 1, 2023, clean vehicle tax credit rules.

Current rules expiring 12/31/22:

  • Confirm the vehicle qualifies for a credit
  • Manufacturer limitation of 200,000 vehicles, eliminating GM and Tesla vehicles
  • No Modified Adjusted Gross Income (MAGI) limitation
  • No MSRP limitation
  • A credit of $2,500 to a maximum of $7,500 per vehicle

New rules starting 1/1/2023:

  • Confirm the vehicle qualifies for a credit
  • Qualified Fuel Cell vehicles qualify for credit
  • Modified Adjusted Gross Income (MAGI) limitation
  • MSRP limitation
  • A credit of $3,750 to a maximum of $7,500 per vehicle

Please feel free to contact us with any questions you might have about your clean vehicle purchase or shopping for one.

Kathleen F. Parzynski, CPA, MST
Tax Director
+1 847 649 8810

Kelly Jordan, CPA, Jurisprudence In International Tax Law, MBA, MBA, CFS, CITA, CTPS
Tax Director
+1 847 350 1504