Understanding the Electric Car Tax Credit
With Tesla’s price reductions on the Model X the electric car (this also includes hybrids) tax credit is back in the news. Let’s look at this in some detail as there are some nuances.
First of all what is a tax credit? A credit is different than a deduction which reduces your income which is then taxed. A credit is a straight reduction of the taxes owed. Therefore it is much more valuable than a deduction.
In terms of the amount of the credit it depends on what type of electric car you buy. Here is a link to the US DoE website on this. To summarize:
New car purchased in 2023 = $7,500 credit
Pre-owned purchased in 2023 = $4,000 credit (calculated as the less or 30% of the value of the car or $4,000)
There are a lot of additional requirements namely:
Must be purchased for use not resale and driven in US.
Modified Adjusted Gross Income (MAGI line 11 of your 1040) must be less than $150K for individuals of $300K for married filed jointly. You can use the lower of the current year or the prior year to qualify.
Price cannot exceed $80,000 for SUVs, vans, trucks. Think Model X .
Price cannot exceed $55K for other types of cars (typically a sedan or coupe). Think Model 3 or Prius.
The manufacturer must qualify and final assembly must take place in the US.
To take the credit you or your CPA will fill out a form called the 8936 and provide the VIN number. This is a very simple process.
If you are wondering if your potential vehicle qualifies simply go to this website and it will let you know.
These electric car tax credits create a financial incentive on top of the general savings especially with gas prices rising (especially in WA state that averages more than $1/gallon more than the national average). Looking for additional ways to manage your budget? Check out our blog on How you can reduce your monthly car payment?
If you have any questions we would be happy to answer them as well.