All About the Previously Owned Clean Vehicle Credit
/A brand new tax credit, the Previously Owned Clean Vehicle Credit, came about from the Inflation Reduction Act of 2022. This new credit applies to pre-owned all-electric, plug-in hybrid and fuel cell electric vehicles purchased on or after January 1, 2023 through 2032. The credit, which is non-refundable, is 30% of the sales price, up to a maximum credit of $4,000.
As with pretty much every tax law, lawmakers made sure to make the requirements for this credit as confusing as possible. Here are the main parameters:
The sales price, exclusive of taxes ad fees, much be $25,000 or less.
The model year of the car must be at least two years prior to the calendar year the car is purchased.
The car must be purchased from a licensed dealer, not a private party.
The buyer’s modified adjusted gross income (AGI) cannot exceed $150,000 for married filing jointly taxpayers, $112,500 for head of household filing status and $75,000 for other taxpayers, in either the year of purchase or the previous year.
The buyer cannot be claimed as a dependent by someone else.
You can’t claim the credit more than once every three years, based on the actual purchase date of the car.
The credit is applicable per taxpayer; the IRS as of this writing has not clarified if both spouses could claim the credit within the same three-year period. (That said, in theory they could file separately in the years they claim the credit.)
There are other specifics listed at www.fueleconomy.gov/feg/taxused.shtml#requirements.
Another important detail is that vehicles are only eligible for the credit for the first qualifying sale taking place on or after August 16, 2022. In other words, a used clean vehicle is not eligible for the credit after the first time, after 8/16/22, it is re-sold for $25,000 or less. How in the world will we know if that’s the case? Ask the dealer. They will know. What this means is that two cars with the same make, model and features offered at the same price of $25,000 or less…one them could be eligible for the credit while the other one is not.
As mentioned above, this is a non-refundable credit. This means that if you take the credit on your tax return, but your federal taxes are less than the credit, the excess goes away.
But wait…there’s a solution for that beginning in 2024! Starting this year, the credit can be transferred to the dealer and applied towards the sales price. The dealer, in turn, will receive the full credit from the IRS. The only catch is that you have to meet the AGI requirements mentioned above. If you file your tax return and do not meet those requirements, you’ll have to pay back the credit with your return. Whether you claim the credit at the dealer or on your return, you have to report the purchase on Form 8936.
Let’s use an example:
George is single and decides he wants to purchase a used EV. George expects his income to be $90,000 in 2024, but his 2023 return showed $70,000 in AGI, which qualifies him for the credit in 2024. He goes to the CarMax website and searches for electric cars at a price of $25,000 or less that are shown at www.fueleconomy.gov/feg/taxused.shtml.
George finds a 2013 Chevy Bolt for $13,000 but it shows it has had two owners. If it was already re-sold by a dealer to the 2nd owner after 8/16/22 for $25,000 or less, it is not eligible for the credit. The dealer will be able to tell you if this is the case. But let’s assume the previous sale took place before that date. George purchases the car for $13,000 plus sales taxes, license fees, etc., less the credit, because he chooses to transfer the credit to the dealer. The credit is 30% times $13,000, or $3,900. Enjoy your used Chevy Bolt, George! (Let’s hope the car’s battery still holds a decent charge.)
Looking for information on NEW clean vehicle car tax credits? Visit www.fueleconomy.gov/feg/tax2023.shtml.
