Used Clean Vehicle Tax Credit

On January 1, 2023, the used (also known as previously owned) clean vehicle tax credit went into effect that was enacted by the Inflation Reduction Act of 2022. Individuals or businesses who buy a qualified used electric vehicle (EV) or fuel cell electric vehicle (FCEV) from a licensed dealer for $25,000 or less, may be eligible for the tax credit. The credit equals 30% of the sale price up to a max credit of $4,000.

Who Qualifies for the Tax Credit?

If an individual bought a previously owned EV or FCEV, which includes cars and light trucks, they may qualify. An individual’s modified adjusted gross income (AGI) may not exceed $150,000 for married filing jointly or a surviving spouse, $122,500 for heads of households and $75,000 for all other filers. Individual’s modified AGI can be used from the year they take delivery of the vehicle or the year before, whichever is the lesser amount. If the income is below the threshold for one of the two years, then the credit can be claimed. Individuals must meet the following qualifications:

Have purchased the vehicle for 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.

What Vehicles Qualify?

Used clean vehicles purchased before 2023 do not qualify for the tax credit. The vehicle must meet all of these requirements:

Have a sale price of $25,000 or less
Have a model year at least two years earlier than the calendar year of when it was bought
Not have already been transferred after August 16, 2022, to a qualified buyer
Be an eligible FCEV or plug-in EV with a battery capacity of 7 kWH
Be for use primarily in the U.S.

The IRS has a list of qualified manufacturers and models of clean vehicles that individuals can look at to determine if their vehicle meets the requirements.

What Are the Sale Qualifications?

The sale of the unused vehicle only qualifies for the credit if the vehicle is bought from a licensed dealer. There is required information that dealers disclose to the buyer and the IRS at the time of sale for qualified used EVs. This required information includes:

Dealer’s name and taxpayer ID number
Buyer’s name and taxpayer ID number
Sale date and sale price
Max credit allowable under IRC 25E
Vehicle Identification Number (VIN), unless the vehicle does not have one assigned
Battery capacity

How To Claim the Used Vehicle Tax Credit

Taxpayers will need to complete Form 8936, provide the VIN on the form and file it with their tax return for the year they took possession of the vehicle to claim the used vehicle tax credit. The used vehicle tax credit is nonrefundable which means that you cannot get back more on the credit than you owe in taxes and cannot apply any excess credit to future tax years.

If you have any questions on EV credits, please contact your Brown Plus advisor.