Usually when discussing federal electric vehicle tax credits in the United States, most people are referring to the Clean Vehicle Credit (formerly the Qualified Plug-in Electric Drive Motor Vehicle Credit) for new EVs. But that’s not the only federal tax credit for buying an EV. Beginning in 2023, there are two new EV tax credits: the Used Clean Vehicle Credit and the Commercial Clean Vehicle Credit. Here’s what you need to know about the newest clean vehicle tax credits.
But, before we get to that, it’s important to note that these tax credits are only available for vehicles purchased on or after Jan. 1, 2023. So, the earliest you will be able to claim either of these credits is when you file your 2023 taxes (spring of 2024 or later).
Now, let’s look at these new federal tax credits for used and commercial EVs in more detail.
What is the federal US Used Clean Vehicle tax credit?
As a new tax credit, the first time you can claim the Used Clean Vehicle Credit is when filing your 2023 tax returns. You can receive credit for 30% of the purchase price up to a maximum of $4,000. The credit can be used on any qualified used battery electric vehicle (BEV), used plug-in hybrid vehicle (PHEV), or used fuel cell electric vehicle (FCEV) that has been purchased from a licensed auto dealer for $25,000 or less.
It’s important to note that this credit is nonrefundable. That means that you cannot receive any more money from the credit than you owe in taxes. For example, if you owe $2,500 in taxes, and you qualify for the full $4,000 from the used CVC, your tax credit will simply zero out your tax bill. You also cannot roll the remainder over onto any taxes owed in the future.
How to qualify for the Used Clean Vehicle Credit
Like the Clean Vehicle Credit for new vehicles, there are individual (taxpayer) and vehicle qualifications.
To qualify for the federal used Clean Vehicle Tax Credit, an individual must:
- Have bought the used EV for yourself, not for resale
- Not be the original owner of the EV
- Not be claimed as a dependent on another person’s tax return
- Not have claimed another used CVC in the three years prior to the purchase date
In addition to these qualifiers, an individual’s modified adjusted gross income (AGI) may not exceed:
- $150,000 for married people filing jointly, or a surviving spouse
- $112,500 for heads of households
- $75,000 for all other tax filers
You can use your modified AGI from the year that you take delivery of the vehicle, or the year before, whichever amount is less. If your income is below the threshold for one of the two years, you can claim the credit, according to the Internal Revenue Service (IRS).
To qualify, the used EV must meet all of the following requirements:
- Have a sale price of $25,000 or less
- Have a model year at least two years prior to the calendar year when you buy it. (For example, a used electric vehicle purchased in 2023 would need to have a model year of 2021 or earlier.)
- Not have already been transferred after August 16, 2022, to a qualified buyer.
- Have a gross vehicle weight rating of less than 14,000 lbs.
- Be an eligible FCV or plug-in EV with a battery capacity of least 7 kilowatt-hours
- Be for driving primarily in the United States
- Be sold by a licensed dealer
You can visit the IRS’s website to find a list of qualified vehicles for the used EV tax credit.
How do I claim the federal used EV tax credit?
To claim the federal used EV tax credit, you will need to fill out IRS Form 8936. File the form with the tax return for the year you took possession of the vehicle. You will also need the EV’s vehicle identification number (VIN).
What is the federal US Commercial Clean Vehicle tax credit?
This tax credit, which can be claimed by businesses and tax-exempt organizations, is worth up to:
- $7,500 for qualified vehicles with gross vehicle weight ratings of under 14,000 lbs.
- $40,000 for all other vehicles.
It equals the lesser of:
- 30% of your basis in the vehicle (total cost after taxes and registration)
- The incremental cost of the vehicle (excess of purchase price versus a comparable ICE vehicle)
As the US Department of Energy writes when discussing the incremental costs for electric vehicles:
“Based on current costs, representative clean vehicles under 14,000 pounds have generalized incremental costs relative to conventional vehicles that range from $7,000 to $35,500. With the exception of PHEV Compact cars, all vehicles under 14,000 pounds have an incremental cost of $7,500 or greater. For vehicle classes over 14,000 pounds, the incremental cost relative to a conventional vehicle ranges from $28,000 to $297,500. Battery size and fuel cell costs are the key drivers of incremental cost, resulting in an incremental cost for Class 4-6 vehicles of $34,500 (BEV), $28,000 (PHEV), and $41,000 (FCEV). All other vehicle classes larger than 14,000 pounds have incremental costs of $66,000 or greater.”
How to qualify for the Commercial Clean Vehicle Credit
Businesses and tax-exempt organizations can qualify for the Commercial Clean Vehicle Credit, and there is no limit to the number of credits a business can claim. As with the Used Clean Vehicle Credit, the Commercial Clean Vehicle Credit is non-refundable, meaning you cannot get back more money than you owe in taxes. This credit can, however, be carried over as a general business credit.
To start, a qualifying vehicle must be subject to a depreciation allowance. There is an exception to this for vehicles of tax-exempt organizations that are not subject to a lease agreement.
Qualifying commercial vehicles must:
- Be made by a qualified manufacturer
- Be for business use and not for resale
- Be used primarily in the USA
- Not have been used to claim any other Clean Vehicle Credit
- Be either 1. motor vehicle manufactured primarily for use on public roads (must comply with ); or 2. mobile machinery (defined in section 8 of IRC 4053)
The vehicle or machinery must also either be:
- A plug-in EV that draws a significant amount of its propulsion from an electric motor with a battery capacity of at least:
- 7 kilowatt hours if the gross vehicle weight rating is < 14,000 lbs.
- 15 kilowatt hours if the gross vehicle weight rating is 14,000 lbs or more.
- A fuel cell motor vehicle that satisfies the requirements laid out in IRC 30B(b)(3)(A) and (B).
How do I claim the federal commercial EV tax credit?
As of Tax Day 2023, IRS has not yet released instructions for claiming the Commercial Clean Vehicle Credit. However, this credit will apply to vehicles purchased beginning in the 2023 tax year. Click here to learn more about the Commercial CVC.
2023 is an exciting time to buy an electric vehicle! We recommend that you speak with a qualified tax preparer if you plan to claim any of the current or new EV tax credits to ensure you receive the full benefits of the credit. Thinking about charging stations? Search tax credits or rebates for commercial EV charging equipment and residential EV charging equipment.
The future is electric!