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What is an electric car tax credit?

SOLVEDby TurboTax764Updated 3 weeks ago

If you own either a qualified all electric or hybrid, plug-in motor vehicle (which may be either a passenger vehicle or a light truck) you may be eligible to receive the Qualified Plug-in Electric Drive Motor Vehicle Credit reported on Form 8936. The credit ranges from $2,500, to $7,500, depending on battery capacity and manufacturer caps.

Note: The Inflation Reduction Act of 2022 changed the Qualified Plug-in Electric Drive Motor Vehicle Credit to the Clean Vehicle Credit and added a new requirement for final assembly in North America that took effect on August 17, 2022.

Qualifying conditions 

  1. Battery size. An electric vehicle's battery size determines the amount of credit you may receive. Typically, the larger the battery, the larger the credit. For some models, the credit amount can fall well below $7,500.

So how can you determine what you’d qualify for in this area?

The IRS uses the following equation to determine the amount of credit:

(A) $2,500 for a minimum of a 5kWh battery pack

(B) + $417 for all battery packs

(C) + $417 per kWh of a battery pack greater than 5 kWh

 A + B + C =  X (Your federal tax credit amount)

Keep in mind the maximum amount you can receive for this specific tax credit is $7,500.

  1. Manufacturer cap. When a manufacturer sells 200,000 total qualifying vehicles, no matter the model, the credit begins to reduce, or phase out.  

Phase 1: After an automaker reaches the 200,000-car-threshold, the credit is cut in half, from $7,500 to $3,750, from the second quarter until the end of the third quarter.

Phase 2: For the next two quarters, it's cut in half again to $1,875, until the allowable credit is $0 one full year later after the phase-out begins.

Purchases of Tesla and General Motors vehicles are no longer eligible for the credit. 

You can find out the maximum amount of the credit for eligible cars in 2022 on the Federal Tax Credits for New All-Electric and Plug-in Hybrid Vehicles page.

Electric Vehicles with Final Assembly in North America provides a list of electric vehicles that may meet the final assembly requirement.

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