In what year can I claim the EV tax credit?

[Stevenamar]

Hello,

2021 is coming to an end and I wanted to purchase a brand new EV qualified for the federal non refundable credit of $7,500. I plan to use this car for my business.

My question is, if I purchase the car before year end of 2021 will I have to claim it on my 2021 return? I won't be able to take full advantage of the credit in 2021 and would prefer to put the car in service in 2022 and be able to claim it on the 2022 return instead. However, I would like to purchase the car soon before year end for fear of missing out on what's left at the dealer lots. Essentially what im asking is does the credit apply to purchase date or service use? 

[Mike9241]

IRC section 30D

(a)Allowance of credit
There shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the sum of the credit amounts determined under subsection (b) with respect to each new qualified plug-in electric drive motor vehicle placed in service by the taxpayer during the taxable year.

[Stevenamar]

Hi Mike,

Thanks for the response. I don't think I understand the answer though. So can I choose to claim the credit in either 2021 or 2022 taxes, regardless of purchase date? 

[Opus 17]

I don't see how you can separate "purchased" from "placed in service" in this case, unless you pay for the car in 2021 and it is delivered in 2022, which would separate the purchase date and in-service date.  If the car is available for you to drive in 2021, then it is in service in 2021, at least for you personally.  

You can put assets in service for business in a different year than you buy them, but that is not helpful to you here.  If you take delivery in 2021, then the car is placed in service at least by you personally.  If you then transfer it the the business and place it "in service" as a business asset in 2022, that's actually worse, because your basis for depreciation would be the fair market value of the used vehicle at that time, which will be less than the new purchase price.

You need to not take delivery until 2022, if you want to claim the EV credit on your 2022 tax return.  You might be able to order it in 2021 and pre-pay or pay a down payment, and that money does not force you to claim the credit when you pay, but you must claim the credit as of the date you take delivery.

[Stevenamar]

Thanks a lot, that makes sense to me now. Taking a look at the EV tax credit form 8936, line 3 requests the date the car was placed in service.

I don't see a line requesting purchase date proof, which begs the question how the IRS keeps track of this unless they individually do a VIN search. It's rather ambiguous and I think they should clarify this as im sure people have the same question.

[Mike9241]

reg 1.167(a)-(11)(e)(1)(i)

(1) Definition of first placed in service -

(i) In general. The term “first placed in service” refers to the time the property is first placed in service by the taxpayer, not to the first time the property is placed in service. Property is first placed in service when first placed in a condition or state of readiness and availability for a specifically assigned function, whether in a trade or business, in the production of income, in a tax-exempt activity, or in a personal activity. In general, the provisions of paragraph (d)(1)(ii) and (d)(2) of § 1.46-3 shall apply for the purpose of determining the date on which property is placed in service, but see subdivision (ii) of this subparagraph for special rule for certain replacement parts. In the case of a building which is intended to house machinery and equipment and which is constructed, reconstructed, or erected by or for the taxpayer and for the taxpayer's use, the building will ordinarily be placed in service on the date such construction, reconstruction, or erection is substantially complete and the building is in a condition or state of readiness and availability. Thus, for example, in the case of a factory building, such readiness and availability shall be determined without regard to whether the machinery or equipment which the building houses, or is intended to house, has been placed in service. However, in an appropriate case, as for example where the building is essentially an item of machinery or equipment, or the use of the building is so closely related to the use of the machinery or equipment that it clearly can be expected to be replaced or retired when the property it initially houses is replaced or retired, the determination of readiness or availability of the building shall be made by taking into account the readiness and availability of such machinery or equipment. The date on which depreciation begins under a convention used by the taxpayer or under a particular method of depreciation, such as the unit of production method or the retirement method, shall not determine the date on which the property is first placed in service. See paragraph (c)(2) of this section for application of a first-year convention to determine the allowance for depreciation of property in a vintage account.

to be safe take delivery in 2022

but I think the reg is really saying if there's 100 % personal use it's placed in service when first used personally which literally would be the date you take delivery and drive it off the lot. if 100% business when first placed in a condition or state of readiness and availability for a specifically assigned function (clear as mud when it comes to something like a car to be used in business without a specific purpose). if both personal and business use, the date you take drive it off the lot because that would be the earliest use. 

[graychildress]

Think I know the answer to this but want to confirm. My question is opposite of the previous question.  If I purchase an electric car in early 2022, can I claim in tax credit when I file my 2021 return?

[DoninGA]

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@graychildress wrote:

Think I know the answer to this but want to confirm. My question is opposite of the previous question.  If I purchase an electric car in early 2022, can I claim in tax credit when I file my 2021 return?

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No, not on the 2021 tax return.  Since the vehicle was purchased in 2022 then you will be able to claim the credit on the 2022 tax return that you file next year.

[Vanessa A]

No, if you purchase an EV car in 2022, you cannot claim the credit in 2021, you would claim the credit on your 2022 tax return. 

[graychildress]

Thank you for the reply. 

[ashock34]

Hi. I would like to piggyback into the conversation regarding tax credits for 2022 EV / Plug in vehicles. I am trying to complete the 8936 form now and it is a bit confusing. I purchased my Prius Prime on 1/10/22 and I hear that the federal tax credit limit of 200,000 vehicles will be reached very soon. Should I or can I submit the 8936 now or do I wait until 2022 is over? I just dont want to find myself out in the cold tax credit wise. Will the Feds look at date of purchase and service when awarding the tax credits? Thanks, Avery

[Mike9241]

you wait until you file your 2022 in 2023 to claim the credit.  

[SundayInSalem]

@ashock34 Form 8936 includes a box to enter your purchase date to ensure your vehicle qualifies for the credit. IRS will post a cut-off date if and when the quota is reached. You will be eligible if you purchase your Prius Prime prior to that date.

You can’t file Form 8936 now for an electric vehicle purchased in 2022 because this form must be filed with a 2022 return, which is not ready.

[ashock34]

Ahhhhh. Makes sense. So far the IRS has not listed the phase out as active but I hear it is close. My purchase was 1/10/22 so I feel better now. Still a little confused on the 8936 form part 4a, b and c and how to compute actual amount of tax credit. The US Department of Energy lists the full amount as 4502.00. Aggggh! Thanks for ur advice. Per usual, the dealership is clueless lol

[ashock34]

Thanks so much. Now to figure out what to put in for part 4 of 8936 such as phase out info. The Department of Energy lists full tax credit as 4502.00 and that has not changed as of yet.