The Inflation Reduction Act (IRA) signed into law in August 2022 includes a potential $7,500 tax credit for individuals who purchase new, clean-energy vehicles in 2023 and a $4,000 tax credit for the purchase of used electric, hybrid and hydrogen-cell vehicles. However, according to recently proposed IRS guidance, qualifying for the credit is more challenging than one may have expected.
The original language of the IRA extended a $7,500 tax credit to consumers with modified adjusted gross income (MAGI) under $150,000 (or $300,000 for married couples filing joint tax returns) who purchase new electric, fuel-cell or hybrid cars that are 1) priced below $55,000 (or $80,000 for SUVs, trucks and vans) and 2) partially manufactured, assembled and sourced with parts from North America (the U.S., Canada or Mexico.) It is this second requirement that the IRS recently clarified and quantified in its proposed guidance for vehicles purchased and placed into service on or after April 18, 2023. More specifically, the credit available to a taxpayer depends on the following criteria:
The last two qualifications account for half of the full credit amount. Therefore, if you purchase a vehicle in which 40 percent of its battery minerals are extracted or processed in North America, you may claim a credit of $3,750 even if the vehicle does not meet the battery component requirement, and vice versa. When the vehicle purchased and placed into services after April 18, 2023, meets both requirements, you may receive the full $7,500 of the credit.
It is also important to note that the North America-assembly and battery-sourcing requirements do not apply to clean commercial vehicles a business leases or rents. Consequently, an electric vehicle held for “use in the purchaser’s trade or business or for lease, and not for resale” may qualify for the full $7,500 clean vehicles tax credit even if it does not meet all the North American production requirements.
About the Author: Scott Montgomery is a director with Provenance Wealth Advisors, an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with Raymond James Financial Services. For more information, call (954) 712-8888 or email firstname.lastname@example.org.
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Posted on April 18, 2023