If you’re in the market for a new car, the federal government would like you to purchase an electric vehicle (EV) or a plug-in hybrid EV (PHEV).
In 2022, Congress enacted the Inflation Reduction Act, which revamped and expanded tax credits for EVs purchased during 2023 and later.
As a result of the new law, there are four ways you can benefit from a federal EV tax credit:
- Purchase an EV and claim the clean vehicle credit.
- Purchase a used EV that qualifies for the previously owned clean vehicle credit.
- Purchase an EV for business use and claim the commercial clean vehicle credit.
- Lease an EV and benefit from a discount from the dealer.
I Can Lease?
To the surprise of many, leasing an EV is the most popular way to benefit from an EV credit. Almost two-thirds of all EVs are being leased instead of purchased.
Why aren’t more people purchasing an EV and claiming an EV credit for themselves? It’s likely due to the many restrictions imposed on the credits.
Restrictions
The clean vehicle credit is a maximum $7,500 tax credit and was designed to be the workhorse EV credit. You can claim it for EVs used for personal or business driving and claim it at the point of sale by transferring it to the dealer. Thus, you don’t have to wait until you file your tax return to get the credit.
The clean vehicle credit is subject to income caps, price caps, and domestic sourcing requirements that greatly limit availability. Currently, only 24 EV models qualify for the full $7,500 credit.
The previously owned clean vehicle credit is a maximum of $4,000 and is subject to even lower income caps than the clean vehicle credit. There is also a $25,000 vehicle price cap on the credit.
The commercial clean vehicle credit is also a maximum of $7,500 but is NOT subject to income caps, price caps, or domestic sourcing requirements. The vehicle’s depreciable tax basis (price and business use percentage) can determine the credit.
That leaves leasing an EV. With a lease, the dealer claims the $7,500 commercial clean vehicle credit for the EV and passes the savings on to you, the customer, in the form of lower monthly lease payments, lower down payments, or rebates. You do not apply for any tax credit.
How We Can Help
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Learn how to proactively save on taxes by scheduling a call with our tax planning specialists.
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