Clean Vehicle Tax Credit
February 6, 2024
Electric vehicles are becoming increasingly more popular every day and it seems that every car manufacturing company has their own adaptation. A big reason for this growing trend – the Clean Vehicle Tax Credit. Intended to promote the purchase of electric or “clean” vehicles, taxpayers can receive a non-refundable credit up to $7,500. Purchasing these qualifying vehicles new in 2024 will allow even more people to take advantage of the credit, but it is important to be educated to make sure you actually qualify before you buy.
While the list of qualifying vehicles in 2024 has shrunk, and many different rules prevent vehicles from qualifying, there are still plenty of vehicles that will qualify. Here are the main requirements for new vehicles purchased in 2024:
Type of Electric Vehicle
- Qualifying clean vehicles include: EV's (fully electric), PHEV's (plug-in hybrids/extended range vehicles), and FCV's (fuel-cell vehicles). These vehicles need to be purchased for your own use and need to be used primarily in the U.S.
Placed In Service Date
- Vehicles must be placed in service in 2023 or after. If it is purchased in 2022, but not placed in service or delivered until 2023, that will still meet the requirements.
- Your modified adjusted gross income (AGI) cannot exceed certain thresholds depending on your filing status:
- Married filing joint or qualifying surviving spouse or qualifying widow(er): $300,000
- Head of Household: $225,000
- All other filing status's: $150,000
- If you're not sure what your modified AGI will be at the end of the year or your current year modified AGI will be more than the threshold, you may use your prior year modified AGI to qualify as long as it meets the same thresholds.
- The MSRP cannot exceed $80,000 for vans, SUVs, and trucks and $55,000 for other electric vehicles. Any additions or addons included at the time of purchase are not included in the MSRP.
- Dealership discounts are not taken into account to determine the eligibility of the vehicle. For example, if the MSRP is listed at $56,000 but you purchase the vehicle for $54,000, the vehicle will still not be eligible for the credit.
- Vehicles must be manufactured by a qualifying manufacturer.
- Final assembly of the vehicle must be done in the U.S.
The qualifications listed above apply to new vehicles and do not include all requirements for the clean vehicle credit. Used vehicles with similar variations of the requirements above can still qualify but will have a smaller maximum credit of $4,000. New vehicles placed in service before 2023 will also have different qualifications. To find out if your specific vehicle meets all of the requirements and to see the maximum credit you could be eligible for, visit the following link: fueleconomy.gov.
Transferring the Credit - New in 2024
Starting in 2024, dealerships can apply your clean vehicle credit to the cost of your vehicle at the time of sale - meaning that instead of receiving the credit when you file your tax return, the dealership (assuming you qualify) can decrease the cost of the sale by the credit amount. This change will greatly benefit lots of taxpayers. The credit is non-refundable, so if taken on your tax return you might not be able to take advantage of the full amount if you don't have enough tax liability. If it is applied to your vehicle at the time of purchase, then you can still take advantage of the full credit as long as you meet all of the qualifications.
One thing to be aware of is that dealerships are not required to verify the modified AGI of the purchaser, that is on the purchasers themselves. They are required to disclose the information on what the threshold limits are, but if you applied the credit at the time of sale and later found out that your modified AGI from the current year or the previous year does not meet the threshold, you will have to recapture any excess credit that you received in advance.
When done right, purchasing an electric vehicle can save you more than gas money. If you are planning on buying a new electric vehicle in 2024, make sure you are educated on the necessary qualifications so you don’t end up owing more when you file your tax returns. Reach out to your Larson representative for more guidance on the clean vehicle tax credit.
Tyler is a Tax Associate at Larson & Company specializing in small business tax preparation and accounting strategies.