Electric car sales broke records in 2021 and have remained consistent in 2022. Sales of electric cars, including fully electric and plug-in hybrids, doubled in 2021 to a new record of 6.6 million sales. Taxpayers who purchase qualifying electric cars may be eligible for a federal tax credit.
The enactment in 2008 of Internal Revenue Code § 30D created a credit for “Qualified Plug-in Electric Drive Motor Vehicles” acquired by taxpayers within a predefined period. The credit has been updated as of August 16, 2022. Qualified vehicles include light trucks as well as passenger vehicles.
How Does the Credit Work?
The Energy Improvement and Extension Act of 2008 made § 30D of the Internal Revenue Code an effective law. The American Recovery and Reinvestment Act of 2009 amended § 30D as effective only for vehicles acquired after December 31, 2009. As of August 16, 2022, this tax credit is generally available only for qualifying electric vehicles with a final assembly in North America.
A vehicle is not considered acquired until the title to the vehicle passes under state law. The vehicle must be acquired for use or lease and not for resale. Also, the vehicle’s original use must begin with the taxpayer and the taxpayer must use the vehicle primarily inside the United States.
Effect of the August 16, 2002, Cutoff Date
The final assembly requirement does not apply to vehicles purchased before August 16, 2022. There is a transition rule effective for taxpayers who entered a written binding contract to purchase a new qualifying electric vehicle before August 16th, 2022, but who did not take possession of the vehicle until on or after August 16, 2022. For these vehicles, the credit is determined by the tax regulations effective before August 16, 2022. Thus, there is no requirement that a vehicle’s final assembly occur in North America.
Vehicles Delivered Between August 16, 2022, but Before January 1, 2023
Aside from the final assembly requirement, taxpayers who purchase and take possession of a qualifying electric vehicle after August 16, 2022, and before January 1, 2023, will have their EV credit determined under the rules effective before the enactment of the Inflation Reduction Act. This also applies to taxpayers who were parties to a written binding purchase contract for a new qualifying vehicle before August 16, 2022.
How Much Is the Credit?
The maximum total amount allowed for the credit is limited to $7,500 for a qualified vehicle. The credit’s base amount is equal to $2,500. In addition, another $417 is added to the credit for a vehicle that receives energy from a battery with at least five kilowatt hours of capacity. An additional $417 is permitted for each kilowatt hour of battery capacity above 5 kilowatt hours.
How Long Does the Credit Last?
The credit begins to phase out for a manufacturer’s vehicles when at least 200,000 qualifying vehicles have been sold in the United States, which is determined on a cumulative basis for sales after December 31, 2009.
The credit phases out for a manufacturer’s vehicles over the one-year period beginning with the second calendar quarter after the calendar quarter in which that manufacturer sells at least 200,000 qualifying vehicles for use in the United States. This is the “phase-out period.”
Taxpayers are eligible to take 50 percent of the credit for qualifying vehicles if acquired in the first two quarters of the phase-out period. Taxpayers are eligible to take 25 percent of the credit for vehicles acquired in the third or fourth quarter of the phase-out period. Any vehicle acquired after the phase-out period is not eligible for this tax credit.
For example, the phase-out period has begun for vehicles manufactured by General Motors since it sold over 200,000 qualifying vehicles in the last quarter of 2018. In this case, the period begins on the date that the second quarter begins in 2019, which is April 1, 2019. This is the second quarter after the manufacturer met the sales threshold.
Thus, the full credit only remains available for vehicles acquired through March 31, 2019. In turn, 50% of the credit is available for vehicles acquired from April 1, 2019, through September 30, 2019. Just 25% of the credit is available for vehicles acquired from October 1, 2019, through March 31, 2020. No credit is available for any vehicle acquired on April 1, 2020, or later.
How Does the Credit Affect Businesses?
For businesses, the tax credit attributable to depreciable property such as a vehicle used for business purposes is treated as a component of the general business credit. This credit may be carried back one year or carried forward for as long as 20 years. A credit that is not attributable to depreciable property is treated as a taxpayer’s personal credit.
Talk to a Qualified Tax Professional
If you live in New York or the Tri-State area and have any questions about any tax-related issue, including the tax credit for electric plug-in vehicles, call 212-490-0704 today for a FREE consultation. You can also learn more online here – THE TAX EXPERTS.
