If you are in the market for a new car, the federal government would like you to purchase an electric vehicle (EV) or plug-in hybrid EV (PHEV).
As a result of the Inflation Reduction Act, 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.
Leasing an EV is the most popular way to benefit from an EV credit, likely due to the many restrictions imposed on the credits. 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.
The clean vehicle tax credit is a maximum of $7,500. You can claim it for EVs used for personal or business driving 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. It 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.