Can You Claim a Tax Credit for an Electric Vehicle Purchase?

The rise of electric vehicles (EVs) in Raleigh, NC, is transforming the way we think about transportation and sustainability. As more individuals consider making the switch to electric vehicles, it’s essential to understand the various incentives that can make the transition even more appealing. 

If you’ve been wondering how the EV tax credit works, our Raleigh accountants from Steward Ingram & Cooper, PLLC are helping North Carolina residents explore the world of electric vehicle tax credits. Join us as we explore answers to your question, “How does the EV tax credit work in NC?” 

How Does the EV Tax Credit Work? 

The Inflation Reduction Act, signed into law in 2022, prolongs the existing incentives, providing tax credits of up to $7,500 for specific electric vehicles, plug-in hybrids, and hydrogen-powered vehicles that satisfy the criteria set by the government. 

Eligibility Criteria

To qualify for the EV Tax Credit, you must meet certain criteria. Generally, the credit is available to individuals who purchase a plug-in electric vehicle that meets specific battery capacity and type requirements. 

Credit Amount

The EV Tax Credit amount is determined based on the capacity of the vehicle’s battery. Vehicles with larger battery capacities typically receive a higher credit amount. The credit is calculated as a percentage of the vehicle’s cost, up to a maximum credit limit. The exact percentage and maximum credit amount can vary based on the battery capacity and the manufacturer.

Phasing Out

The EV Tax Credit has a phasing-out mechanism tied to the manufacturer’s total sales of electric vehicles. Once a manufacturer reaches a certain threshold of EV sales, the tax credit begins to phase out for that manufacturer’s vehicles. This means that the credit amount gradually reduces over time as the manufacturer sells more EVs.

Claiming the Credit

To claim the EV Tax Credit, you need to complete the necessary tax forms when filing your federal income tax return. The specific form used for claiming the credit is Form 8936 (“Qualified Plug-in Electric Drive Motor Vehicle Credit”). You’ll need to provide information about the vehicle, including its make, model, and battery capacity, as well as the purchase date and cost. And, of course, you’ll have to prove your tax deduction eligibility.

Impact on Taxes

The EV Tax Credit directly reduces the amount of federal income tax you owe. If your tax liability is less than the amount of the credit, you can use the credit to offset your tax liability dollar-for-dollar. In other words, the credit can potentially lead to a lower tax bill or even a tax refund if your credits exceed your tax liability.

Carryforward

If your tax liability is less than the maximum credit amount available for your EV, you may not be able to claim the full credit in a single tax year. However, the good news is that the unused portion of the credit can often be carried forward to future tax years until it’s fully utilized.

Professional Assistance

Navigating the complexities of tax credits and incentives can be challenging. To ensure accurate reporting and maximum benefit, it’s advisable to seek assistance from a tax consultant in Raleigh, such as Steward Ingram & Cooper PLLC, who can guide you through the process and help you understand the intricacies of claiming the EV Tax Credit.

How Does the EV Tax Credit Work for State Taxes in NC?

While North Carolina does not have a state-specific tax credit for EV purchases, it’s possible your electric vehicle purchase makes you eligible for other types of incentives, such as:

• Rebates: Some states offer rebates or grants to offset the purchase cost of electric vehicles. These rebates might be based on factors like battery capacity or vehicle type.
• Registration Fee Reductions: States might offer reduced registration fees for electric vehicles as a way to incentivize their adoption.
• HOV Lane Access: In some areas, electric vehicle owners are allowed to use high-occupancy vehicle (HOV) lanes, even if they’re driving alone. This perk can help reduce commute times and congestion.
• Public Charging Infrastructure Support: States may provide funding or support for the installation of public EV charging stations.
• Home Charging Station: There is a $1,000 credit for installing an electric charging station on your property. Makes sense to purchase one, right?
• Tax Exemptions: While not a direct credit, some states exempt electric vehicles from certain sales taxes or use taxes, effectively reducing the upfront cost.

To determine your eligibility for any of the available state-wide incentives in North Carolina, it’s important to work with an accountant.

Do Used Cars Qualify for the EV Tax Credit? 

The previous iteration of the EV tax credit sparked considerable debate due to its exclusion of pre-owned vehicles. However, recent amendments introduced by the IRS aim to address this concern. Commencing from the year 2023, individuals investing in qualifying pre-owned electric vehicles can now be eligible for a tax credit that can reach up to $4,000, with a ceiling limit set at 30% of the vehicle’s purchase value.

Several key conditions apply:

• The pre-owned vehicle must be either a plug-in electric or a fuel cell vehicle, featuring a battery capacity of at least 7 kilowatt hours.
• This credit is applicable solely to the initial transfer of ownership of the vehicle.
• The total purchase cost of the pre-owned vehicle should not exceed $25,000.
• The vehicle model must have aged a minimum of two years since its initial manufacturing.
• The weight of the vehicle should not exceed 14,000 pounds.
• The tax credit can be claimed only once every three years.

Am I Eligible for the EV Tax Credit?

Whether you’re a beginner at tax planning or you are seasoned in filing your taxes with the IRS, understanding eligibility for the EV Tax Credit can seem daunting. The eligibility criteria for understanding how does the EV tax credit work considers some specifications about your electric vehicle. Let’s explore how the EV tax credit works based on these requirements. 

Income Limit

Individuals who disclose adjusted gross incomes of $150,000 or less on their tax submissions are eligible. For those who file as heads of household, the threshold is $225,000, while joint filers must have an income of $300,000 or below to qualify. 

Vehicle Price

Starting in 2023, the eligibility criteria for the tax credit stipulate that vans, SUVs, and pickup trucks should have a manufacturer’s suggested retail price (MSRP) of $80,000 or less to be eligible for the credit. Meanwhile, sedans and passenger cars are subject to a cap of $55,000. In the case of used vehicles, the maximum price threshold decreases to $25,000.

Manufacturing Guidelines

The U.S. Department of Energy has an up-to-date list of eligible vehicles that qualify for the EV Tax Credit. 

Battery Capacity

For the battery component of the credit, which comes with a potential value of up to $3,750, specific criteria related to the vehicle’s battery origin must be met. Both the assembly and manufacturing of the vehicle’s battery must be made in North America. 

These predetermined percentage benchmarks for battery assembly are required based on the year: 

• 2023: A minimum of 50% 
• 2024: A minimum of 60% 
• 2025: A minimum of 60% 
• 2026: A minimum of 70% 
• 2027: A minimum of 80% 
• 2028: A minimum of 90% 
• 2029 through 2032: A requirement of 100% battery assembly or manufacturing within North America must be met to be eligible for the credit.

Critical Minerals

In order to qualify for the remaining $3,750 portion of the credit, vehicles must satisfy a mandate which dictates that a specific proportion of critical minerals present in the vehicle’s battery should undergo extraction or processing within the United States or within a nation that holds a free-trade agreement with the U.S. 

These percentage benchmarks are set as follows:

• 2023: 40%
• 2024: 50%
• 2025: 60%
• 2026: 70%
• 2027 through 2032: 80%

Need Help Claiming Your EV Tax Credit? Contact Our Raleigh CPAs Today!

Ready to navigate the intricacies of claiming your Electric Vehicle Tax Credit? Have more questions on how does the EV tax credit work? Our Raleigh accountants are here to guide you through the process with precision. Don’t miss out on potential tax savings– whether you’re purchasing an EV, plug-in hybrid, or exploring state-specific incentives. 

Contact us today to ensure you maximize your benefits and streamline your tax filing by calling us at  (919) 872-0866 or filling out the contact form below.