Introduction

Three federal income tax credits may be available to help offset your cost to purchase certain clean vehicles (including electric, plug-in hybrid, and fuel cell vehicles).

The new clean vehicle tax credit can be either a personal or a general business tax credit, depending on whether the vehicle is used in a trade or business. The previously-owned clean vehicles tax credit is a personal tax credit. The qualified commercial clean vehicles tax credit is a general business tax credit. These credits are nonrefundable if they exceed your tax liability. An unused general business tax credit can be carried forward to a later year.

New clean vehicle tax credit

A personal or general business tax credit of up to $7,500 is available for the purchase of new clean vehicles meeting certain requirements (including electric, plug-in hybrid, and fuel cell vehicles). A credit of $3,750 is available if a critical minerals requirement is met, and a credit of $3,750 is available if a battery components requirement is met. Fuel cell vehicles that have final assembly within North America can qualify for the credit without regard to these two requirements.

A vehicle placed in service after 2023 with battery components manufactured or assembled by a foreign entity of concern is not eligible for any amount of the credit. Also, a vehicle placed in service after 2024 with applicable critical minerals in the battery that are extracted, processed, or recycled by a foreign entity of concern is not eligible for any amount of the credit.

Vehicle eligibility

In addition to the critical minerals, battery components, and other vehicle requirements, the vehicle cannot be acquired for resale.

The credit is not available for vehicles with a manufacturer’s suggested retail price (MSRP) higher than $80,000 for vans, sport utility vehicles, and pickups, or $55,000 for other vehicles (generally, passenger automobiles). For this purpose, the MSRP is the base retail price suggested by the manufacturer, plus the retail price suggested by the manufacturer for each accessory or item of optional equipment physically attached to the vehicle at the time of delivery to the dealer. It does not include destination charges, optional items added by the dealer, or taxes and fees.

You can check the eligibility of vehicles for the credit at fueleconomy.gov. Final confirmation of vehicle qualification should be done at the time of purchase. The seller must provide you with a report about a vehicle’s eligibility at the time of sale.

Purchaser’s income limitation

The credit is generally not available if the modified adjusted gross income (MAGI) of the purchaser for the taxable year or the preceding taxable year (whichever is less) exceeds $150,000 ($300,000 for joint filers and surviving spouses, $225,000 for heads of households). The income limitation does not apply to corporations subject to the corporate income tax. In the case of a partnership or S corporation, the credit is allocated to the partners or shareholders, respectively, and the income limitation is applied to those individuals.

Personal or general business tax credit

The new clean vehicle tax credit can be either a personal or a general business tax credit, depending on whether the vehicle is used in a trade or business. If the vehicle is used 50% or more for business, the credit is treated as a general business tax credit; otherwise, the credit is allocated between personal and business use. The credit is nonrefundable if it exceeds your tax liability. An unused general business tax credit can be carried forward to a later year.

Transfer of credit to dealer

In 2024 and later years, you may be able to irrevocably elect to transfer the credit attributable to personal use of the vehicle to dealers as payment for the vehicle.

Previously-owned clean vehicles tax credit

A personal tax credit equal to the lesser of $4,000 or 30% of the sales price is available to individuals for the purchase of certain previously-owned clean vehicles from a dealer. The credit is available only for the first transfer of the vehicle after August 16, 2022, to a person other than the person with whom the original use of the vehicle commenced (purchaser will need to check the sales history of the vehicle).

The credit is not available for vehicles with a sales price exceeding $25,000. Nor is the credit available if the purchaser’s MAGI for the taxable year or the preceding taxable year (whichever is less) exceeds $75,000 ($150,000 for joint filers and surviving spouses, $112,500 for heads of households).

The vehicle must meet a number of requirements. General eligibility of vehicles for the credit can be checked at fueleconomy.gov.

There are a number of other requirements that you and the previously-owned clean vehicle must meet:

• The model year must be at least two years earlier than the year in which you acquire the vehicle
• The original use of the vehicle commenced with some other person
• You cannot claim the credit if you can be claimed as a dependent by someone else
• You cannot claim the credit more than once during a three-year period
• You must purchase the vehicle for use and not for resale

In 2024 and later years, you may be able to irrevocably elect to transfer the credit to dealers who choose to participate in the program. The dealer can then receive advance payments of the credit from the IRS shortly after the sale. In return for your transferring the credit, the dealer provides a financial benefit equal to the credit to you in cash or in the form of a partial payment or down payment for the purchase of the vehicle.

Qualified commercial clean vehicles tax credit

A general business tax credit of up to $7,500 ($40,000 if the vehicle weighs 14,000 or more pounds) is available for the purchase of a qualified commercial clean vehicle meeting certain requirements.

The credit is equal to the lesser of (a) 15% of the tax basis (generally, the purchase price reduced by any section 179 expense deduction) of the vehicle (30% if the vehicle is not powered by a gasoline or diesel internal combustion engine), or (b) the incremental cost of the vehicle. The incremental cost is the excess of the purchase price of the clean vehicle over the price of a comparable vehicle that is powered solely by a gasoline or diesel internal combustion engine.

The vehicle:

• Must be acquired for use or lease by the taxpayer and not for resale
• Must be manufactured by a qualified manufacturer
• Must be manufactured primarily for use on public roads and highways, or is certain mobile machinery
• Must be propelled to a significant extent by an electric motor with a capacity of not less then 15 kilowatt hours (seven kilowatt hours for vehicles weighing less than 14,000 pounds) and is capable of being recharged from an external source of electricity, or be a qualified fuel cell vehicle (i.e., propelled by power derived from one or more cells that convert chemical energy directly into electricity by combining oxygen with hydrogen fuel)

A qualified commercial clean vehicle tax credit is not allowed with respect to a vehicle for which a new clean vehicle tax credit was allowed.