Did you know that if you purchase a used electric vehicle (EV) in 2023, you can receive a tax credit? That’s right—the tax credit isn’t just for brand-new EVs.
According to the IRS, “Beginning January 1, 2023, if you buy a qualified used electric vehicle (EV) or fuel cell vehicle (FCV) from a licensed dealer for $25,000 or less, you may be eligible for a used clean vehicle tax credit (also referred to as a previously owned clean vehicle credit). The credit equals 30% percent of the sale price up to a maximum credit of $4,000.
The credit is nonrefundable, so you can’t get back more on the credit than you owe in taxes. You can’t apply any excess credit to future tax years. Purchases made before 2023 don’t qualify.”
Let’s break down how this works and what it means for potential EV buyers.
How It Works
The 2023 EV tax credit is an incentive from the federal government to help make EV ownership more accessible. This credit applies to both new and used vehicles purchased in or after 2023. How much of a tax credit you are eligible for depends on several factors, including the battery size of your vehicle and the time of year when it was purchased. The amount can range anywhere from $2,500 to $7,500 per vehicle.
For example, if you were to purchase a used EV with an 83kWh battery capacity in June 2023, you would be eligible for a $7,500 tax credit. However, if you purchased the same car six months later in December of that same year, the tax credit would drop to $6,000 instead. The amount also varies depending on where you buy your car; some states offer additional incentives on top of the federal incentive.
Eligibility Requirements
Not everyone is eligible to take advantage of this EV tax credit; there are certain requirements that must be met before you can qualify for the full or partial amount of money offered by this program.
You must:
- Own your vehicle outright (no loans or leases),
- Be an individual who bought the vehicle for use and not for resale
- Not be the original owner
- Have an individual taxpayer identification number (ITIN) or social security number
- (SSN),
- Have filed either Form 1040 or 1040-SR for the applicable tax year when claiming the credit.
- Not be claimed as a dependent on another person’s tax return
- Not have claimed another used clean vehicle credit in the 3 years before the purchase date
In addition, your modified adjusted gross income (AGI) may not exceed:
- $150,000 for married filing jointly or a surviving spouse
- $112,500 for heads of households
- $75,000 for all other filers
Other conditions may apply as well; consult with your accountant for detailed information about eligibility requirements specific to your situation.
Qualified Vehicles and Sales
To qualify, a vehicle must meet all of these requirements:
- Have a sale price of $25,000 or less.
- Have a model year at least 2 years earlier than the calendar year when you buy it. For example, a vehicle purchased in 2023 would need a model year of 2021 or older.
- Not have already been transferred after August 16, 2022, to a qualified buyer.
- Have a gross vehicle weight rating of less than 14,000 pounds.
- Be an eligible FCV or plug-in EV with a battery capacity of least 7 kilowatt hours.
- Be for use primarily in the United States.
Find a list of qualified vehicles.
The sale qualifies only if:
- You buy the vehicle from a dealer
- For qualified used EVs, the dealer reports required information to you at the time of sale and to the IRS.
Required information includes:
- Dealer’s name and taxpayer ID number
- Buyer’s name and taxpayer ID number
- Sale date and sale price
- Maximum credit allowable under IRC 25E
- Vehicle identification number (VIN), unless the vehicle is not assigned one
- Battery capacity
How to Claim the Used Clean Vehicle Credit
The EV tax credit is a great way to save money on your next used electric vehicle purchase without having to sacrifice quality or performance. With up to $7,500 in savings available through this program per vehicle purchased, many people can enjoy substantial savings while also doing their part for environmental sustainability.
Complete Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles and New Clean Vehicles), and file it with your tax return for the year you took possession of the vehicle to claim the used clean vehicle credit. You will need to include the vehicle identification number (VIN) on the form.
You may need to talk with your accountant for help guiding you through all the necessary paperwork required to claim your credits and maximize savings!
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