The Inflation Reduction Act passed in August 2022 significantly changed tax credits available to consumers who purchase plug-in vehicles. The manufacturer-based limitations have been removed, so vehicles purchased from the highest volume sellers, such as Tesla, Toyota, and GM, are all fully eligible for tax credits, provided the vehicle qualifies under the new rules. The maximum available credit of $7,500 is unchanged. However, the available credit may be reduced depending on which vehicle you are purchasing.
The Inflation Reduction Act’s plug-in vehicle credits are based on a vehicle’s specifications. The credits are based on how the vehicle is manufactured and its components. Another detail is that the MSRP of the vehicle cannot be more than $80,000 for vans, SUVs, and pickup trucks and no more than $55,000 for all other vehicles. If you are interested in purchasing a plug-in vehicle, there are websites available at irs.gov and fueleconomy.com that will tell you the maximum available credit. The dealer or your tax advisor should also be able to assist you if you have any questions.
Your personal income total also will limit credit eligibility. If your modified adjusted gross income (MAGI) in the year the new vehicle was placed in service or the preceding year is higher than $300,000 (married filing jointly, qualifying surviving spouse/widow(er)), $225,000 (head of household) or $150,000 (all other filers), you are not eligible for the credit. For example, if you place a plugin vehicle into service in 2023, the MAGI on either your 2022 or 2023 tax return must be below the income thresholds detailed above. For most people, MAGI is the same as adjusted gross income (AGI). If you have income earned in Puerto Rico or American Samoa or claim the foreign income exclusion, please consult your tax advisor to confirm your MAGI.
Many other rules are less likely to affect you as a purchaser but may also limit credit eligibility. These include the date the vehicle was purchased and when it was placed in service (put into use), whether the acquired vehicle is new or used, whether it is owned by a business or used for business, and if multiple individuals own it. You should provide your tax advisor with as much detail as you have about the vehicle, ownership, and use so that they can consider all possible factors to evaluate whether your purchase is eligible for the plug-in vehicle credit.