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What To Know About The Clean Vehicle Credit

by PracticeCFO | January 4, 2024

Big changes have been made to the electric vehicle tax credit - now simply known as the "Clean Vehicle Credit."  Read on for a 1) brief review of the credit in 2023, 2) the various criteria needed to be eligible for it, and 3) new updates that can be implemented for 2024.
2023 Rundown: Effective January 01, 2023, the credit was subject to additional limitations for critical mineral, battery component, income level, and MSRP thresholds. The most significant change, however, was the removal of the manufacturer’s 200,000 EV phase-out limitation. That made it so that the credit is now available for certain cars, such as Tesla, who were previously ineligible.

The amount of the credit depends on when you placed the vehicle in service (took delivery).

For vehicles places in service January 1 to April 17, 2023, the credit is broken down as follows:

  • $2,500 base amount
  • Plus $417 for a vehicle with at least 7 kilowatt hours of battery capacity
  • Plus $417 for each kilowatt hour of battery capacity beyond 5 kilowatt hours
  • Up to $7,500 total

For vehicles placed in service on or after April 18, 2023, the credit is broken down into three parts:

  • $3,750 for critical mineral requirements
  • $3,750 for battery component requirement.
  • $7,500 if a vehicle meets both (plus the additional requirements above)

Criteria for a qualified clean vehicle:

  • Have a battery storage capacity of 7 kilowatt-hours or more.
  • Weigh less than 14,000 pounds in gross vehicle weight.
  • Be produced by a qualified manufacturer (fuel-cell vehicles excluded).
  • Undergo final assembly in North America.
  • Have 50% or more of the value of the battery components manufactured or assembled in North America (required for one of the $3,750 credits).
  • Have 40% or more of the value of the minerals contained in its battery mined or processed in countries with which the US has a free trade agreement, or recycled in North America to receive the remaining $3,750 credit.

To be eligible for the tax credit, you must:

  • Buy the car for your own use, not for resale.
  • Have an adjusted gross income of less than $300,000 for Married Filing Jointly ($150,000 if single)
  • Ensure the manufacturer-suggested retail price does not exceed $80,000 for SUVs, pickups, and vans or $55,000 for other vehicles.
  • Use the qualifying vehicle primarily in the United States.

You can verify the above requirements for a specific auto here.

A Used Clean Vehicle Credit may be available if you have purchased a used qualified electric vehicle. It is limited to $4,000 or 30% of the sales price. Other stipulations include:

  • The model year must be at least be 2 years earlier than the year you acquired it
  • The purchase price can’t exceed $25,000
  • It can only be claimed on the first sale of a qualified used vehicle after 12/31/2022 to a qualified buyer
  • The car must be acquired from a licensed car dealer.
  • You can claim the used EV credit only once every three years.
  • There is no need to meet the north American assembly requirement under this credit. Income limitations are also much lower under the Used clean vehicle credit.

Beginning January 1, 2024, you can opt to claim the Clean Vehicle Credit by transferring it to a dealer at the point-of-sale. In doing this, dealers can directly reduce the qualifying vehicle’s purchase price. Consumers won’t need to wait until they file their tax returns to claim the credit. They can instead receive a lower purchase price on the car.

Still have questions on the Clean Vehicle Credit? Reach out to us directly, or visit the IRS website here.

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Disclaimer: The marketing materials presented on this website include testimonials that serve as reviews of PracticeCFO Investments’s products and services. PracticeCFO Investments does not compensate clients for reviews or testimonials, and PracticeCFO Investments does not provide anything of value in exchange for these reviews. PracticeCFO Investments has determined that there are no material conflicts of interest between the firm and the participant, and PracticeCFO Investments has not influenced the statement made by the client(s) appearing on this website.
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