What is the Clean Vehicle Credit?

The clean vehicle credit is a tax credit the IRS offers tax-payers who purchase qualifying plug-in electric or "clean” vehicles.

The clean vehicle credit is a tax credit the IRS offers tax-payers who purchase qualifying plug-in electric or "clean” vehicles. The clean vehicle credit (CVC) was a part of the Inflation Reduction Act that was signed into law on Aug. 16, 2022, by President Biden. The CVC is the rebranded name and has expanded adaptations of the former Qualified Plug-in Electric Drive Motor Vehicle Credit. The CVC is a credit worth up to $7,500 for buyers of new all-electric and hybrid plug-in cars.

What vehicles can qualify for the credit?
The $7,500 credit is achieved from a $3,750 credit for meeting the critical minerals requirement and a
$3,750 credit for meeting the battery components requirement. For the critical mineral requirement, at least 40% of the critical minerals must be processed or extracted from the United States or a country with which the U.S. has a free trade agreement or recycled in North America. For the battery components requirement, at least 50% of the battery components must be manufactured or assembled in North America. The final requirement for the vehicle is that the final assembly of the vehicle must occur in North America to qualify for the CVC. The final assembly requirement is for any car purchased after Aug. 17, 2022. The CVC is not allowed for an EV with a manufacturer’s suggested retail price more than $80,000 for vans, sport utility vehicles and pickup trucks. For all other vehicles, the limit is $55,000. The CVC also allows a credit for the purchase of a used clean vehicle, the requirements are not discussed in this article. Make sure to discuss with the vehicle seller if the vehicle qualifies for these requirements and ask for the documentation for it.

Who can benefit from the Clean Vehicle Credit?
The CVC, which passed in the Inflation Reduction Act does have AGI limits on who can qualify for the credit. The tax credit isn’t available to single individuals with modified adjustment gross income over
$150,000, head of household filers over $225,000, and married couple over $300,000. The other item to note about taking the credit is it is a nonrefundable credit. If the car can qualify for the full $7,500 but your tax due for the year is only $6,000, you can only take $6,000 to offset your tax due and you lose $1,500 of the total credit available.

How do I document that I qualify for the credit?
If you purchase a vehicle that qualifies for the credit, the seller of the new clean vehicle is required to furnish a report to you and the IRS containing your name and taxpayer identification, the vehicle identification number, the battery capacity of the vehicle, and the other verification related to provide the credit to the taxpayer. Make sure to keep this documentation and provide it to your tax professional with your tax return information so that your tax preparer can see that you can qualify for the CVC and that you have the proper records to verify the credit.

Cassie Divelbiss, CPA, is a Tax Senior Associate at Arledge, an Edmond-based public accounting firm. Arledge is a recognized leader in the accounting industry offering practical solutions in the areas of tax planning, auditing, consulting, accounting advisory services and client accounting.

This article contains general information only and does not constitute tax advice or any other professional services. Before making any decisions or taking any action that might affect your income taxes, you should consult a professional tax advisor.

This article is not intended for and cannot be used to avoid future penalties that may be imposed by the Internal Revenue Service.