In the last decade, electric vehicles (EVs) have become more widely available and accessible to consumers. Investing in an electric vehicle can be an effective way to reduce the environmental impact of gasoline emissions and cope with rising gas prices. IRC §30D provides a credit for qualified plug-in electric motor vehicles, including passenger vehicles and light trucks. This section was originally enacted in the Energy Improvement and Extension Act of 2008, later amended by the American Recovery and Reinvestment Act of 2009.

Credit Incentives and Requirements

Taxpayers purchasing a qualifying plug-in electric vehicle qualify for a $2,500 base credit. An additional $417 can be claimed for a vehicle which draws propulsion energy from a battery with at least 5 kilowatt hours (kwh) of capacity. After that, an extra additional $417 can be claimed for each kilowatt hour of battery capacity in excess of the original 5 kwh threshold. This credit can be claimed up to a $7,500 limit per qualifying vehicle.

To qualify for the credit, vehicles must meet the following requirements:

• Acquired after 12/31/2009
• Purchased new
• Possess a minimum 4 kwh capacity battery
• Possess the ability to be recharged from an external source
• Weigh less than 14,000 pounds GVW (gross vehicle weight)

In addition, a vehicle does not qualify for the credit if that vehicle:

• Was purchased with the sole intent to resell
• Was converted to electric drive, but not originally manufactured as an EV
• Is leased, not owned
  • The leasing company can claim the credit as the original purchasers. Some leasing companies reflect the benefits of the credit in the vehicle’s pricing or monthly payments. Taxpayers should be aware when leasing qualifying vehicles that knowledge of the credit can be used as a possible point of negotiation.
• Is a “low speed vehicle” as defined by Section 571.3 Title 49 of the Code of Federal Regulations
• Is a “vehicle manufactured primarily for off road use”, like a golf cart
  • Certain NEVs (neighborhood electric vehicles) might qualify, if they possess more “car-like” characteristics such as seatbelts, blinkers, impact resistance, etc. Taxpayers should refer to the IRS as the authority on possible exceptions.

Phase Out

Once a manufacturer sells at least 200,000 qualifying vehicles for use in the United States, the credit is phased out, and once-qualified vehicles from that manufacturer become ineligible. This 200,000-unit threshold is determined on a cumulative basis for sales after December 31, 2009. Partial credit can be claimed in the phase-out period following a manufacturer’s passage of the threshold. The phase-out period for the credit occurs over one year, beginning with the second calendar quarter of the year the threshold is crossed, and schedules as follows:

• For the first two quarters of the phase-out period, qualifying vehicles are eligible for 50% of the credit,
• For the third or fourth quarter of the phase-out period, qualifying vehicles are eligible for 25% of the credit, and
• After the phase-out period, once-qualifying vehicles are no longer eligible for the credit.

In a letter dated June 13, 2022, the CEOs of General Motors (GM), Ford, Toyota Motor North America, and Stellantis (parent organization of Chrysler) have called on Congress to raise the 200,000-unit limitation threshold for the new qualified plug-in electric motor vehicle credit. GM and Tesla have both already passed the 200,000-vehicle threshold. Toyota and Ford are set to hit the cap by the end of 2022.

Manufacturer Responsibility for Purchaser Reliance

Fortunately, taxpayers are not responsible for determining whether the model of EV they purchased is eligible for the credit, nor are they responsible for calculating the amount of credit they can claim. Manufacturers are required by law to work with the IRS and comply with set regulations to list or advertise an electric vehicle they manufacture and sell as eligible for the credit. A detailed list of qualifying electric vehicles, organized by manufacturer with associated claimable amounts, is available by clicking here.

If a manufacturer listed is a foreign manufacturer, the citation is in reference to that manufacturer’s domestic distributor. If a vehicle is listed, that indicates that the manufacturer has provided the appropriate information required by the IRS and received acknowledgement of that vehicle’s eligibility for the credit, as well as verified the associated credit amount. In the rare event that a manufacturer falsely represented and sold a vehicle as “eligible” when it did not actually qualify, and a consumer relied on that representation to claim the credit, the IRS will not attempt to collect any underpayment penalty funds from the taxpayer.

Contact the professionals at Gilliam Bell Moser for additional information on tax incentives for electric vehicles.

Brett Davidson, CPA/PFS