All About the New "Clean Vehicle Credit" and "Previously Owned Clean Vehicle Credit" Applicable to Tax Years 2023 through 2032

The Inflation Reduction Act of 2022 brought major changes to incentivize people to purchase electronic vehicles (EVs), plug-in hybrids and hydrogen fuel cell powered vehicles. The credit is now called the “Clean Vehicle Credit.” Here we will highlight aspects of the new laws for clean vehicle purchases in 2023 through 2032.

In the past, the major constraint on these credits has been a 200,000 car phase-out on the credits, which was blown through awhile back for several vehicles. This constraint is now gone.

However here are new requirements for taxpayers to receive clean vehicle credits of $7,500 per vehicle beginning in 2023. These new requirements include final assembly, MSRP and income limitations, and are highlighted below.

FINAL ASSEMBLY REQUIREMENTS

Final assembly of the vehicle must take place in North America. How do you find this out? View the list at https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit and look up the Vehicle Identification Number (VIN) to see if the auto meets the requirements. In future years there will also be specific requirements regarding components of the battery. Your dealer should be able to quickly give you an answer on this.

MSRP REQUIREMENTS

There are manufacturer’s suggested retail price (MSRP) limitations for vehicles to be eligible for the new credits. MSRP includes options, accessories and trim, but not destination charges. The maximum MSRP allowed is $55,000 for passenger vehicles and $80,000 for vans, pick-up trucks and SUVs. What that means is that if the MSRP is greater than those amounts, even by $1, they will not be eligible for any Clean Vehicle Credit. Let’s take a look at some MSRPs as of January 2023 for selected 2023 EVs:

• Audi Q5 55 PHEV MSRP SUV starts at $57,400

• BMW 330e MSRP starts at $44,900

• BMW X5 PHEV SUV MSRP starts at $65,700

• Cadillac LYRIQ SUV MSRP starts at $62,990

• Chevy Bolt MSRP starts at $25,600

• Chevy Bolt EUV SUV MSRP starts at $27,200

• Chrysler Pacifica PHEV MSRP starts at $49,995

• Ford Escape Plug-In Hybrid (SUV) starts at $38,500

• Ford E-Transit Van MSRP starts at $49,575

• Ford F-150 Lightning truck EV MSRP starts at under $40,000

• Ford Mustang Mach-E (SUV) MSRP starts at $46,895

• GMC Hummer EV Pickup MSRP starts at $110,295 (ineligible)

• GMC Hummer EV SUV MSRP starts at $105,595 (ineligible)

• Jeep Grand Cherokee 4xe SUV MSRP starts at $60,260

• Jeep Wrangler 4xe SUV MSRP starts at $54,735

• Lincoln Aviator Plug-In Hybrid SUV starts at $53,340

• Lincoln Aviator Grand Touring SUV starts at $69,190

• Lucid Air MSRP starts at $89,050 (ineligible)

• Mercedes EQS SUV MSRP starts at $104,400 (ineligible)

• Tesla Model 3 MSRP starts at $46,990

• Tesla Model S MSRP starts at $96,820 (ineligible)

• Tesla Model X MSRP starts at $119,200 (ineligible)

• Tesla Model Y SUV MSRP starts at $65,990

• Nissan Leaf MSRP starts at $28,040

• Rivian R1S SUV MSRP starts at $72,500

• Rivian R1T Pickup MSRP starts at $67,500

• VW ID.4 SUV MSRP starts at $37,495

These MSRPs are not adjusted for inflation, which means that over the course of time, it is likely that, unless prices drop, less of these vehicles will be eligible for the credit.

INCOME AND OTHER LIMITATIONS

There are now income limitations to obtain the credit. Your “Modified Adjusted Gross Income” (MAGI*) must be $300,000 or less if you use the Married Filing Jointly filing status, $225,000 or less for Head of Household and $150,000 or less for other filing statuses in either the current or prior year to qualify for the credit. MAGI limits are not adjusted for inflation, which means that over time, less people will be eligible for the credits.

(*What is MAGI? For purposes of this credit, MAGI is basically all your taxable income, less various adjustments like IRA contributions, plus any untaxed foreign income. Ask your tax advisor for more specifics.)

The credit is non-refundable and any unused credit does not carryforward to future years. What this means is that if your taxes are less than $7,500 and your credit is $7,500, you will not receive the full amount of the credit.

You claim the credits on Form 8936 (Qualified Plug-In Electric Drive Motor Vehicle Credit) with your tax return.

Starting in 2024, you can apply the Clean Vehicle Credit towards the purchase of the vehicle at the dealership rather than wait and apply for the credit on your tax return. Yay! However, there could be some complications in doing this - what if your MAGI is too high? Will you have to pay the credit back on your return? These things will have to be sorted out.

USED CLEAN VEHICLE CREDITS - SOMETHING NEW

There are now tax credits available for certain used clean vehicles. It is aptly called the Previously Owned Clean Vehicle Credit (POCVC). If you purchase a used "clean vehicle” from an authorized dealer and the sales price is $25,000 or less, you may be able to take a tax credit of 30% of the sales price, up to a maximum credit of $4,000.

The MAGI limits to claim the used car credit are exactly half of the new car credits - $150,000 or less for joint filers, $112,500 for head of household and $75,000 for other filing statuses. So, if you are single and make $75,001 in 2022 and 2023, you will not be able to claim the POCVC for a 2023 purchase.

Tax planning (an example): Let’s say your W-2 wages are $76,000 this year and last year but you want to buy a $25,000 used clean vehicle and obtain a $4,000 POCVC on your 2023 tax return. Consider contributing to your employer’s 401k plan in 2023 enough to reduce your taxable W-2 income to $75,000. Or if your employer does not have a 401k, contribute $1,000 to an IRA to reduce your MAGI down to $75,000. (This is just one simple example; your tax advisor can help you with your particular situation.)

The POCVC, like the Clean Vehicle Credit, is not refundable and cannot be carried forward to future years.

Learn more on the IRS website at www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after.

The state of California has its own array of rebates that can vary from $1,000 to $7,000 currently, increasing to $7,500 starting February 28, 2023. Learn more on the California Clean Vehicle Rebate Project website at cleanvehiclerebate.org/en. Best to apply the California rebates at the time of purchase of the vehicle….otherwise they are considered taxable on your federal returns.

(As with other tax matters, ask your tax advisor for details. The information herein is current as of January 2023.)

IRS Announces 2022 Tax Filing Deadline for California Storm Victims Extended to May 15, 2023

The IRS issued the press release below this morning, Tuesday, January 10, 2023, indicating that individual tax returns and payments for those living in counties designated by FEMA as disaster areas will be extended to May 15, 2023. We anticipate the California Franchise Tax Board will follow suit, but no word from the FTB at this time. (California has an automatic 6-month extension to file returns, but taxes still are required to be paid by the original tax filing date.) UPDATE: California has conformed to the extended tax filing dates.

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Victims of severe winter storms, flooding, and mudslides in California beginning January 8, 2023, now have until May 15, 2023, to file various individual and business tax returns and make tax payments, the Internal Revenue Service announced today.

The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). This means that individuals and households that reside or have a business in Colusa, El Dorado, Glenn, Humboldt, Los Angeles, Marin, Mariposa, Mendocino, Merced, Monterey, Napa, Orange, Placer, Riverside, Sacramento, San Bernardino, San Diego, San Joaquin, San Luis Obispo, San Mateo, Santa Barbara, Santa Clara, Santa Cruz, Solano, Sonoma, Stanislaus, Sutter, Tehama, Ventura, Yolo and Yuba counties qualify for tax relief. Other areas added later to the disaster area will also qualify for the same relief. The current list of eligible localities is always available on the disaster relief page on IRS.gov.

The tax relief postpones various tax filing and payment deadlines that occurred starting on January 8, 2023. As a result, affected individuals and businesses will have until May 15, 2023, to file returns and pay any taxes that were originally due during this period.

This includes 2022 individual income tax returns due on April 18, as well as various 2022 business returns normally due on March 15 and April 18. Among other things, this means that eligible taxpayers will have until May 15 to make 2022 contributions to their IRAs and health savings accounts.

In addition, farmers who choose to forgo making estimated tax payments and normally file their returns by March 1 will now have until May 15, 2023, to file their 2022 return and pay any tax due. The May 15, 2023, deadline also applies to the quarterly estimated tax payments, normally due on January 17, 2023, and April 18, 2023. This means that individual taxpayers can skip making the fourth quarter estimated tax payment, normally due January 17, 2023, and instead include it with the 2022 return they file, on or before May 15.

The May 15 deadline also applies to the quarterly payroll and excise tax returns normally due on January 31 and April 30, 2023. In addition, penalties on payroll and excise tax deposits due on or after January 8, 2023, and before January 23, 2023, will be abated as long as the tax deposits are made by January 23, 2023.

The IRS disaster relief page has details on other returns, payments and tax-related actions qualifying for the additional time.

The IRS automatically provides filing and penalty relief to any taxpayer with an IRS address of record located in the disaster area. Therefore, taxpayers do not need to contact the agency to get this relief. However, if an affected taxpayer receives a late filing or late payment penalty notice from the IRS that has an original or extended filing, payment or deposit due date falling within the postponement period, the taxpayer should call the number on the notice to have the penalty abated.

In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records necessary to meet a deadline occurring during the postponement period are located in the affected area. Taxpayers qualifying for relief who live outside the disaster area need to contact the IRS at 866-562-5227. This also includes workers assisting the relief activities who are affiliated with a recognized government or philanthropic organization.

Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2023 return normally filed next year), or the return for the prior year (2022, normally filed this tax season). Be sure to write the FEMA declaration number – 3691-EM − on any return claiming a loss. See Publication 547 for details.

The tax relief is part of a coordinated federal response to the damage caused by these storms and is based on local damage assessments by FEMA. For information on disaster recovery, visit disasterassistance.gov

www.irs.gov/newsroom/irs-announces-tax-relief-for-victims-of-severe-winter-storms-flooding-and-mudslides-in-california

Arroyo Conejo Creek is the Longest Creek in the Conejo Valley

The Arroyo Conejo is the longest creek in the Conejo Valley, covering 57 square miles, including 43 in the Conejo Valley and 14 in the Santa Rosa Valley. It flows through Thousand Oaks and Camarillo, including the communities of Newbury Park, Casa Conejo and the Santa Rosa Valley.

Historically the Arroyo Conejo was a seasonal creek. Today it is a perennial creek fueled by urban runoff. The north folk carved Wildwood Canyon over thousands of years. Paradise Falls in Wildwood Park is a well known feature of the Arroyo Conejo. The south fork originates in the Conejo Hills above Newbury Park.

The south fork of the Arroyo Conejo can be seen from the Arroyo Conejo Trail in the 302 acre Arroyo Conejo Open Space, accessible from the Rancho Conejo Playfield in Newbury Park.

Arroyo Creek seen from the Arroyo Conejo Trail in Thousand Oaks.

The Arroyo Conejo is part of the Ventura County Watershed. Watersheds are defined by the natural boundaries of a surface runoff area. Ventura County has four watershed zones named for the major tributary in each zone - Ventura River (Zone 1), Santa Clara River (Zone 2), Calleguas (Zone 3), and Cuyama River (Zone 4 North) and Malibu Creek (Zone 4 South). The Arroyo Conejo is in the Calleguas Creek Zone.

The Calleguas Creek zone has a watershed area of about 341 square miles. All stream flows in Zone 3 eventually end up in Mugu Lagoon before entering the Pacific Ocean. Major tributaries to Calleguas Creek include Revolon Slough, Conejo Creek, Arroyo Santa Rosa, Arroyo Conejo, Arroyo Las Posas/Arroyo Simi, Happy Camp Canyon, Lang Creek, and Tapo Canyon.

The Calleguas Creek watershed contains the man-made Lake Bard (aka Bard Reservoir – main imported water supply for about 60% of Ventura County population), along with several Ventura County Watershed Protection District constructed debris basins of varying sizes and depths designed to capture runoff sediment before it can cause damage to the Calleguas Creek drainage system. Some of the largest District basins include Sycamore Canyon, Las Llajas, and Runkle Canyon basins.

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Bard Reservoir seen from the Sunset Hills Trail in Thousand Oaks.

More on Ventura County Watersheds at www.vcpublicworks.org/wpd/watersheds.