How the 2023 Inflation Reduction Act EV Tax Credit Will Change for 2024

If you’re thinking of buying an electric vehicle (EV) in the near future, you may be wondering how the 2023 Inflation Reduction Act EV tax credit will change for 2024. The EV tax credit is a federal incentive that can reduce your tax bill by up to $7,500 when you purchase a new or used qualifying EV. However, the rules and requirements for claiming the credit are not the same for every year.

In this post, we’ll explain how the 2023 Inflation Reduction Act EV tax credit works, what changes are coming in 2024, and how to plan ahead to maximize your savings.

How the 2023 Inflation Reduction Act EV Tax Credit Works

The 2023 Inflation Reduction Act EV tax credit is a nonrefundable credit that you can claim on your federal income tax return if you buy a new or used qualifying EV in 2023. The amount of the credit depends on several factors, such as:

• The type of vehicle (plug-in hybrid, battery electric, or fuel cell)
• The battery capacity of the vehicle
• The manufacturer’s suggested retail price (MSRP) of the vehicle
• The date of purchase and delivery of the vehicle
• Your modified adjusted gross income (MAGI)
• Whether the vehicle meets certain critical mineral and battery component requirements

The maximum credit amount for new EVs is $7,500, which is split into two parts: $3,750 for meeting the critical mineral requirement and $3,750 for meeting the battery component requirement. To meet these requirements, the vehicle must have at least 50% of its critical minerals and battery components sourced from North America. If the vehicle meets only one of these requirements, the maximum credit is $3,750. If the vehicle meets none of these requirements, it is not eligible for the credit.

The maximum credit amount for used EVs is $4,000, which is also split into two parts: $2,000 for meeting the critical mineral requirement and $2,000 for meeting the battery component requirement. To qualify as a used EV, the vehicle must have been previously owned by someone other than you or a related party, and have been driven less than 75,000 miles. The same sourcing rules apply as for new EVs.

The actual credit amount you can claim may be lower than the maximum amount, depending on your MAGI and the MSRP of the vehicle. The credit phases out for taxpayers whose MAGI exceeds certain thresholds:

• $300,000 for married couples filing jointly
• $225,000 for heads of households
• $150,000 for all other filers

You can use your MAGI from either the year of purchase or the preceding year, whichever is lower. If your MAGI is below the threshold in either year, you can claim the full credit amount.

The credit also phases out for vehicles whose MSRP exceeds certain limits:

• $80,000 for vans, SUVs, and pickup trucks
• $55,000 for all other vehicles

If the MSRP exceeds the limit for that specific vehicle type, that vehicle is not eligible for the credit.

To claim the credit, you must buy the vehicle for your own use and not for resale. You must also use it primarily in the U.S. You can claim only one credit per vehicle and up to two credits per year. You cannot carry over any unused credit to future years.

What Changes Are Coming in 2024

The 2023 Inflation Reduction Act EV tax credit will change in several ways in 2024. Here are some of them:

• The critical mineral and battery component requirements will become stricter. The vehicle must have at least 55% of its critical minerals and battery components sourced from North America in 2024, and at least 60% in 2025 and beyond.
• The sourcing rules will also apply to labor costs. The vehicle must have at least 45% of its labor costs attributable to workers in North America in 2024, and at least 50% in 2025 and beyond.
• The MSRP limits will be adjusted for inflation. The limits will be increased by a percentage equal to the consumer price index (CPI) for all urban consumers from August 2022 to August of each subsequent year.
• The MAGI thresholds will be adjusted for inflation. The thresholds will be increased by a percentage equal to the CPI for all urban consumers from August 2022 to August of each subsequent year.
• You will have an option to transfer the credit to a dealer. Instead of waiting until you file your tax return to claim the credit, you can choose to assign it to an eligible dealer at the point of sale. The dealer will then reduce the purchase price of the vehicle by the amount of the credit and claim it on their own tax return. This option will be available only for new EVs, not for used EVs.

How to Plan Ahead to Maximize Your Savings

If you’re planning to buy an EV in the near future, you may want to consider the following tips to maximize your savings from the 2023 Inflation Reduction Act EV tax credit:

• Compare different models and brands of EVs. Not all EVs are eligible for the credit, and not all eligible EVs qualify for the same credit amount. You may want to compare different models and brands of EVs based on their features, prices, battery capacities, sourcing percentages, and credit amounts. You can use online tools like FuelEconomy.gov or Edmunds.com to find and compare eligible EVs.
• Check your MAGI and plan your income. Your MAGI may affect your eligibility and amount of the credit. You may want to check your MAGI from the previous year and estimate your MAGI for the current year. If your MAGI is close to or above the threshold, you may want to plan your income accordingly. For example, you may want to defer some income to a later year or increase some deductions to lower your MAGI.
• Time your purchase and delivery. The date of purchase and delivery of the vehicle may affect your eligibility and amount of the credit. You may want to time your purchase and delivery to take advantage of the best credit amount and sourcing rules. For example, you may want to buy and take delivery of a new EV before April 18, 2023, to avoid the critical mineral and battery component requirements. Or you may want to buy and take delivery of a new EV in 2024 or later, to take advantage of the option to transfer the credit to a dealer.
• Keep records and receipts. To claim the credit, you will need to provide proof of purchase and ownership of the vehicle, as well as information about its features, price, battery capacity, sourcing percentages, and labor costs. You may want to keep records and receipts of these items, such as the sales contract, invoice, window sticker, certificate of origin, manufacturer’s statement, or other documents. You will also need to fill out Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit, and attach it to your tax return.

Conclusion

The 2023 Inflation Reduction Act EV tax credit is a valuable incentive that can help you save money and reduce your environmental impact when you buy an EV. However, the rules and requirements for claiming the credit are not static and will change over time. By understanding how the credit works and what changes are coming in 2024, you can plan ahead and maximize your savings.

We hope you found this post helpful and informative. If you have any questions or comments, please feel free to leave them below.

And if you’re looking for more tips on how to optimize your EV lifestyle, check out our other blog posts on The Greener Electron. We cover topics like how to charge your EV faster, how to save money on your electricity bill, how to reduce your carbon footprint, and more.

Thanks for reading!