Demand for electric vehicles is skyrocketing. Whether turning yours in for a new model or buying your first electric vehicle is on your "To Do" list, you'll want to do your research and sign by Dec 31, 2022 if you are eyeing a tax credit. Why?
Starting Jan 1, 2023, individual taxpayers (businesses excluded!) purchasing a qualifying electric vehicle with income over harsh income limits will not qualify got the $ 7,500 Clean Vehicle Tax Credit.
Electric Vehicle Purchases before December 31, 2022
The Good News:
Through Dec 31, 2022, there is no cap on income to qualify for individual taxpayers to receive the credit.
Expensive personal-use electric vehicles that cost more that $80,000 or a Sedan costing more than $55,000 qualify.
The Bad News:
The 200,000 Vehicle Cap on manufacturers making electric vehicles still apply. Don't count on the $7,500 tax credit if you are eyeing a Tesla.
New law limits Electric Vehicle Tax Credits to vehicles that meet certain eclectic North American Assembly rules, meaning your options are reduced. It appears electric vehicles eligible for the tax incentive are limited to vehicles with final assembly in North America.
According to the Department of Energy, there are 21 vehicles that may qualify for the credit if you buy before January 1, 2023. A few Audis, BMWs, Rivians, Jeeps, and a 2023 Mercedes and 2023 Audi made it to the Department's list.
Build location may vary based on the specific vehicle, trim, or the date in the Model Year when it was produced. The build location of a particular vehicle can be confirmed by referring to its Vehicle Identification Number (VIN) using the U.S. Department of Transportation’s VIN decoder or an information label affixed to the vehicle.
Electric Vehicle Purchased after January 1, 2023
The Good News:
Beginning January 1, 2023, Clean Vehicle Credit provisions remove manufacturer sales caps (Tesla's qualify!) if you are buying buying for business use (yet another reason to talk to us about the benefits of starting a side LLC or S-corporation).
Beginning January 1, 2023, the scope of qualifying vehicles expands to include EVs and FCEVs. (although qualifying vehicles will require a traction battery that has at least seven kilowatt-hours (kWh), and establish criteria for a vehicle to be considered eligible that involve sourcing requirements for critical mineral extraction, processing, and recycling and battery component manufacturing and assembly.
Vehicles that meet critical mineral requirements are eligible for $3,750 tax credit, and vehicles that meet battery component requirements are eligible for a $3,750 tax credit. Vehicles meeting both the critical mineral and the battery component requirements are eligible for a total tax credit of up to $7,500.
The Bad News:
Beginning January 1, 2023, Clean Vehicle Credit provisions require owners of electric vehicles purchased for for personal use to meet harsh income limits to qualify for a potential $ 7,500 tax credit. In 2023, you won't qualify if your adjusted gross income exceeds $300,000 (MFJ) or $150,000 (Single) or $225,000 (HoH).
Beginning January 1, 2023, Clean Vehicle Credit provisions stricter criteria need to be met for an electric vehicle to qualify for a tax credit.
Purchasing for Business Use in 2023
The Good News:
Income limits don't apply to businesses purchasing an qualifying electric vehicle for business use on public streets or "mobile machinery" (self-propelled construction equipment).
The credit is for each qualifying electric vehicle you purchase and is not limited to one vehicle per taxpayer when purchased for business use.. A business can claim multiple credits if it purchases multiple qualifying electric vehicles in the same year.
Electric vehicles must be depreciable property to qualify for the commercial clean vehicle credit, however they do not need to be used solely for business use. Rules apply depending on if the business is a corporation, sole proprietorship, etc. so you will want to do your research first.
The maximum credit is $7,500 for qualifying electric vehicles for business use with a GVWR of less than 14,000 lbs, and $40,000 for qualifying electric vehicles with a GVWR of 414,000 or more.
The North America Assemble Credit does not apply to electric vehicles purchased for business use after January 1, 2023.
Year-end 2022 and 2023 tax strategy & planning season is in full swing. Reach out to get our conversation started so we can answer your pressing tax questions, and discuss architecting current-state and future state tax projections, a road map to get you from "Point A" to your ideal "Point B", based on your intentions, and financial and tax structures.
You 'll be glad you did.
Cobalt PacWest | CPAs & Tax Advisors
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Palo Alto, CA 94306
650.930.9562 | 877.223.5678