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President Biden signed into law the Inflation Reduction Act on August 16, 2022. One item in this Bill is a new “Clean Vehicle Credit” starting January 1, 2023.
This Bill provides for a $7,500 tax credit for qualifying vehicles. What is a qualifying vehicle? Final assembly must be in North America. That means vehicles such as Kia, Hyundai, Toyota, and others may be disqualified. Also, the old credit put a limit of 200,000 vehicles per manufacturer. This requirement has been eliminated.
One must also look at the minerals and components used in the manufacture. The credit is reduced if a certain percentage of the critical minerals and batteries are not extracted, manufactured and/or assembled in North America (or a free trade agreement partner for critical minerals).
There are also purchase price limits of $55,000 for autos and $80,000 for trucks and SUVs. In addition, your adjusted gross income cannot exceed $150,000 for a single filer or $300,000 for joint filers. This income is measured in the year of credit or one year prior.
Plug-in hybrids can also qualify for the new credit. They must have a battery capacity of 7kWh or greater. For example, the 2022 Ford Escape PHEV and 2022 Toyota RAV4 PHEV qualify under this standard.
Previously, only new vehicles qualified for the credit. Now, you can purchase a previously owned vehicle and receive a credit of up to 30% of the purchase price capped at $4,000. You must be the second owner, the vehicle must be at least 2 model years old and purchased from a dealer for $25,000, or less.
You must also purchase the vehicle for your own use (not for resale), have not had a vehicle credit within 3 years and meet the adjusted gross income limitations of $75,000 for single and $150,000 for joint filers.
Beginning 2024, you can obtain the credit at the time of purchase. The dealer would apply your credit against the purchase price. If you later do not meet the income thresholds, it would need to be repaid.
What about charging the vehicle? Well, there is a new residential credit for a recharging station of 30% limited to $1,000.
Sellers are required to provide qualifying vehicle information and vehicle identification numbers to the IRS. It is best to confirm your vehicle qualifies with a reputable dealer.
Lastly, the credits are nonrefundable. Meaning you must have a tax liability to receive any benefit.
Want more information? See the White House Clean Energy Guide at https://www.whitehouse.gov/cleanenergy/?utm_source=cleanenergy.gov.
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