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EV Tax Credit Considerations

EV Tax Credit Considerations

January 20, 2023

It is no secret that electric vehicles (EV) are popular in California. Drive down any street, and you will surely see a number of these vehicles in shopping malls, business parking lots, and probably in your neighbor's driveway. There is an additional incentive if you purchase a new EV or Fuel Cell vehicle in the form of tax credits. The tax benefits for purchasing an electric vehicle have been extended through the next decade. Specific EV models again qualify for tax incentives as the cap on these vehicles has been eliminated- good news if you are a Tesla fan. 
"The Clean Vehicle Credit" included in the Inflation Reduction Act extends EV tax benefits. Remember that the IRS uses the words "may qualify for up to $7,500." This does not mean you will automatically receive the $7,500 credit if you purchase a vehicle. Still, before you run out to buy a new car for personal or business use, you should check in with your CPA to understand the nuances of the Clean Vehicle Credit (CVC).
There are several things to consider when purchasing an electric vehicle, including your driving style, how long it takes to charge, how many miles you drive daily and if you are using the car for business or personal use. 
Purchasing an electric vehicle for your business allows your CPA to depreciate the car according to current tax laws. Any Clean Vehicle credits you receive for the purchase are credited to your business. You do not get the benefit of a personal tax AND a business deduction. The IRS frowns on double dipping.
If you are looking to purchase an EV for personal or business use, there are several IRS requirements and qualifications you will need to consider, including:

  • Modified gross income level
  • Battery capacity
  • Gross vehicle weight rating of fewer than 14,000 pounds
  • MSRP can't exceed:
    • $80,000 for vans, sport utility vehicles, and pickup trucks
    • $55,000 for other vehicles

You can view the list of requirements to qualify for the Clean Vehicle Credit on the IRS site here. The IRS has also published a list of vehicle manufacturers and models eligible for this credit. We recommend you consult this list before you purchase your vehicle.
If you are considering purchasing a new electric or Fuel Cell Vehicle, contact us to discuss how this credit will impact your taxes. Remember, tax planning is a year-round activity, and consulting with your team in advance can assist you in decisions throughout the year.