The term qualified electric vehicle refers to a plug-in electric passenger vehicle or light truck that allows the owner to claim a nonrefundable tax credit after purchase. These vehicles must have at least four wheels, be designed for use in the public, and must not be used for commercial purposes. The vehicle must be powered primarily by an electric motor that draws its charge from rechargeable batteries or fuel cells. The vehicle must be driven almost exclusively in the U.S.
Key Points to Remember
- A qualified electric vehicle is a plug-in electric passenger vehicle or light truck that allows the owner to claim a nonrefundable tax credit after purchase.
- The vehicle must have at least four wheels, be designed for use in public, and must not be used for commercial purposes.
- It must be powered primarily by an electric motor that draws its charge from rechargeable batteries or fuel cells.
- Vehicle owners may qualify for the full $7,500 credit, as long as they fill out Form 8936.
- The credit phases out after a certain period of time, which is based on the manufacturer.
Understanding Qualified Electric Vehicles
As mentioned, a qualified electric vehicle is any passenger vehicle or light truck that is designed to be driven by consumers. Therefore, these vehicles are not intended for commercial use. They must run on batteries or fuel cells that can be recharged using plug-in technology. Consumers with these vehicles are able to claim a nonrefundable tax credit to offset the purchase price.
This credit can be found via Section 30D of the Internal Revenue Code (IRC). The section originated from The Energy Improvement and Extension Act of 2008 and was later modified for vehicles acquired after Dec. 31, 2009, by the American Recovery and Reinvestment Act (AARA).
Additional amendments were made for specific two- or three-wheeled vehicles acquired between Dec. 31, 2011, and Jan.1, 2014, by the American Taxpayer Relief Act (ATRA).
To receive the credit, the vehicles must be acquired for use or lease, and the credit isn’t available for resale. The original use of the vehicle must begin with the taxpayer predominantly in the U.S. There are three parts that must be filled out on Form 8936 to get the credit. Part I calculates the tentative credit amount while the remaining two parts allocate the credit between an individual’s business in Part II and personal use of the vehicle in Part III.
President Joe Biden signed the $1.2 trillion Infrastructure Investment and Jobs Act on Nov. 15, 2021. The bill makes investments in a series of areas, including the electric vehicle market. A total of $7.5 billion is set aside to build a network of charging stations across highways and communities in rural, disadvantaged, and hard-to-reach areas. This investment also aims to tackle climate change and create jobs in the American manufacturing sector.
Special Considerations
The amount of the full credit is $7,500. Individuals can receive $2,500 for vehicles acquired after Dec. 31, 2009. A vehicle owner can receive an extra $417 if it is powered by a battery that provides as much as five-kilowatt hours of capacity. The owner can get an additional $417 for every kWh of battery life above the initial five kWh threshold.
The Internal Revenue Service (IRS) phases out the credit, though. According to the agency, this takes place for a car company’s vehicles “over the one-year period starting with the second calendar quarter after the calendar quarter in which at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States.”
A consumer may be eligible for 50% of the credit if they acquire their vehicle from a car manufacturer within the first two quarters of the phase-out period and 25% of the credit if it’s purchased within the third or fourth quarters of that period. Any vehicles purchased from a car company once the phase-out period is complete.
You can find a complete list of makes, models, and credit amounts on the IRS website. Keep in mind, though, that the phase-out period for Tesla vehicles has already initiated.
Effect of the Inflation Reduction Act of 2022
The Inflation Reduction Act of 2022 (Public Law 117-169) amended the Qualified Plug-in Electric Drive Motor Vehicle Credit (IRC 30D), which is now known as the Clean Vehicle Credit. It adds a new requirement for final assembly in North America which took effect on Aug. 16, 2022.
Additional provisions went into effect on Jan. 1, 2023. Further guidance on these provisions is forthcoming. You can get more information about this credit from the Internal Revenue Service.
Related Terms: nonrefundable tax credit, renewable energy, green transportation, clean vehicle credit, plug-in electric drive motor vehicle.
References
- Internal Revenue Service. “IRC 30D New Qualified Plug-In Electric Drive Motor Vehicle Credit”.
- Internal Revenue Service. “Instructions for Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-In Electric Vehicles”. Page 1.
- U.S. Congress. “H.R. 6049 - Energy Improvement and Extension Act of 2008”.
- U.S. Congress. “H.R. 1 - American Recovery and Reinvestment Act of 2009”.
- U.S. Congress. “H.R. 8 - American Taxpayer Relief Act of 2012”.
- Internal Revenue Service. “Plug-In Electric Drive Vehicle Credit (IRC 30D)”.
- Internal Revenue Service. “Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-In Electric Vehicle”.
- The White House. “UPDATED FACT SHEET: Bipartisan Infrastructure Investment and Jobs Act”.
- Internal Revenue Service. “Instructions for Form 8936, Qualified Plug-In Electric Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-In Electric Vehicles”. Page 2.
- U.S. Department of Energy. “Inflation Reduction Act of 2022”.
