Electric Vehicle (EV) and Fuel Cell Electric Vehicle (FCEV) Tax Credit

The Inflation Reduction Act of 2022 (Public Law 117-169) amended the Qualified Plug-in Electric Drive Motor Vehicle Credit (IRC 30D), now known as the Clean Vehicle Credit, and added a new requirement for final assembly in North America that took effect on August 17, 2022, with additional requirements taking place beginning January 1, 2023. For vehicles placed in service on or after January 1, 2023, the Clean Vehicle Credit provisions will be subject to updated guidance from the IRS and the U.S. Department of the Treasury. See the IRS Plug-In Electric Drive Vehicle Credit for further details. More details are provided below by date of purchase and on the list of EVs with Final Assembly in North America.

Vehicles Placed in Service After December 31, 2022

Beginning January 1, 2023, the Clean Vehicle Credit (CVC) provisions remove manufacturer sales caps, expand the scope of eligible vehicles to include both EVs and FCEVs, and require a traction battery that has at least seven kilowatt-hours (kWh). An available tax credit under the CVC may be limited by the vehicle’s MSRP and the buyer’s modified adjusted gross income (see below). The CVC provisions also establish criteria for a vehicle to be considered eligible that involve sourcing requirements for critical mineral extraction, processing, and recycling and battery component manufacturing and assembly; these critical material and battery component provisions begin to apply only after the U.S. Department of the Treasury issues guidance on these particular provisions.

Until the Treasury Department issues this critical mineral and battery component guidance, the available CVC tax credit amounts to a base amount of $2500 plus, for a vehicle that draws propulsion energy from a battery with at least 7 kWh of capacity, $417, plus an additional $417 for each kilowatt hour of battery capacity in excess of 5 kWh. The total tax credit available for a vehicle may not exceed $7,500.

Once the Treasury Department issues the critical mineral and battery component guidance, vehicles that meet the critical mineral requirements are eligible for $3,750 tax credit, and vehicles that meet the battery component requirements are eligible for a $3,750 tax credit. Vehicles meeting both the critical mineral and the battery component requirements are eligible for a total tax credit of $7,500.

Critical Minerals: To be eligible for the $3,750 critical minerals portion of the tax credit, the percentage of the value of the battery’s critical minerals that are extracted or processed in the United States or a U.S. free-trade agreement partner or recycled in North America, must increase according to the following schedule:

Battery Components: To be eligible for the $3,750 battery components portion of the tax credit, the percentage of the value of the battery’s components that are manufactured or assembled in North America must increase according to the following schedule:

To be eligible for the CVC tax credit, vans, sport utility vehicles, and pickup trucks must meet the additional requirements of not having a final manufacturer suggested retail price (MSRP) above $80,000, and all other vehicles may not have a final MSRP above $55,000. The final MSRP can be found on the vehicle’s window sticker, which is also known as the “Monroney label”; the final MSRP includes any trim, options, or accessories for the particular vehicle and excludes the destination fee.

Additionally, a taxpayer’s eligibility for the tax credit may be limited by thresholds for modified adjusted gross income (MAGI); only individuals having a MAGI below the following thresholds are eligible for the tax credit:

• $300,000 for joint filers
• $225,000 for head-of-household filers
• $150,000 for single filers

Further guidance on these provisions is forthcoming. For more information, including additional eligibility requirements, see the IRS Plug-In Electric Drive Vehicle Credit website.

Vehicles Purchased Between August 17 and December 31, 2022

Qualifying EVs purchased and delivered between August 17, 2022, and December 31, 2022, are eligible for the tax incentive as described below for vehicles purchased before August 17, 2022, but are limited to vehicles with final assembly in North America. Manufacturer sales caps on vehicles apply. Note that for some manufacturers, the build location may vary based on the specific vehicle, trim, or the date in the Model Year when it was produced because some models are produced in multiple locations. The build location of a particular vehicle should be confirmed by referring to its Vehicle Identification Number (VIN) using the U.S. Department of Transportation’s VIN decoder or an information label affixed to the vehicle.

For more information, see EVs with Final Assembly in North America.

Vehicles Purchased Before August 17, 2022

Qualifying EVs purchased before August 17, 2022, are eligible for a tax credit that is available for the purchase of a new qualified EV that draws propulsion using a traction battery that has at least five kilowatt-hours (kWh) of capacity, uses an external source of energy to recharge the battery, has a gross vehicle weight rating of up to 14,000 pounds, and meets specified emission standards. The minimum credit amount is $2,500, and the credit may be up to $7,500 based on each vehicle’s traction battery capacity and the gross vehicle weight rating. The credit will begin to be phased out for each manufacturer in the second quarter following the calendar quarter in which a minimum of 200,000 qualified PEVs have been sold by that manufacturer for use in the United States. This tax credit is also available for future EV owners with a written binding contract to purchase a new qualifying electric vehicle before August 16, 2022, but do not take possession of the vehicle until on or after August 16, 2022. For more information, including qualifying vehicles and sales by manufacturer, see the Internal Revenue Service (IRS) Qualified Plug-in Electric Drive Motor Vehicle Credit website.

(Reference U.S. Code 30D and Public Law 117-169)