The IRC 30D New Electric Vehicle Tax Credit

The federal government offers a tax incentive, known as the Clean Vehicle Credit under Internal Revenue Code Section 30D, for the purchase of new clean vehicles. The Inflation Reduction Act of 2022 introduced revisions to this credit, altering the rules for vehicles purchased between 2023 and 2032 and establishing new requirements. This nonrefundable credit provides up to $7,500 for qualifying new plug-in electric vehicles (EVs) and fuel cell vehicles (FCVs). The updated regulations also aim to bolster domestic manufacturing and supply chains.

Taxpayer Eligibility Requirements

To qualify for the New Clean Vehicle Credit, a buyer must satisfy several personal eligibility rules. The taxpayer’s modified adjusted gross income (MAGI) cannot exceed certain thresholds. For married couples filing a joint tax return, the limit is $300,000, for those filing as head of household, the cap is $225,000, and for all other filing statuses, the limit is $150,000.

A taxpayer can use their MAGI from either the year they take delivery of the vehicle or the preceding year, whichever is lower, to determine eligibility. MAGI is calculated from a taxpayer’s adjusted gross income plus certain deductions.

The vehicle must be purchased for the taxpayer’s own use, not for resale. The vehicle must also be used primarily within the United States. An individual cannot claim the credit if they can be claimed as a dependent on another person’s tax return. Only the original buyer of a new vehicle is eligible, and it can only be claimed once per vehicle.

Vehicle Eligibility Requirements

For a vehicle to be eligible, it must meet several requirements. The Manufacturer’s Suggested Retail Price (MSRP) cannot exceed $80,000 for vans, sport utility vehicles, and pickup trucks. For all other vehicle types, the limit is $55,000. This price includes optional equipment but excludes destination fees.

The vehicle must have a battery with a capacity of at least 7 kilowatt-hours and a gross vehicle weight rating below 14,000 pounds. The vehicle’s final assembly must occur in North America. Buyers can verify a vehicle’s final assembly location by entering its Vehicle Identification Number (VIN) on the National Highway Traffic Safety Administration (NHTSA) website.

The credit is also tied to two battery sourcing requirements designed to onshore the supply chain. To qualify for the first $3,750, the battery must meet a critical minerals requirement. For a vehicle placed in service in 2025, at least 60% of the value of the battery’s critical minerals must be extracted or processed in the United States or a country with a U.S. free-trade agreement.

To qualify for the second $3,750, the battery must meet a component requirement. For vehicles placed in service in 2025, at least 60% of the value of the battery’s components must be manufactured or assembled in North America. A vehicle is ineligible if any of its battery components or critical minerals are sourced from a Foreign Entity of Concern (FEOC). Because these standards change, buyers should consult the definitive list of qualifying vehicles at FuelEconomy.gov.

Calculating the Credit Amount

The total credit is determined by the two battery sourcing requirements. A vehicle meeting the critical minerals standard qualifies for $3,750, and a vehicle meeting the battery component standard qualifies for the other $3,750. This means a vehicle can be eligible for a credit of $7,500, $3,750, or $0.

The New Clean Vehicle Credit is nonrefundable. This means the credit can reduce a taxpayer’s federal income tax liability to zero, but no portion will be paid out as a cash refund if the credit is greater than the taxes owed. For example, if a taxpayer with a $5,000 tax liability qualifies for a $7,500 credit, their tax bill is eliminated, but the remaining $2,500 is not refunded or carried forward.

How to Claim the Credit

To claim the credit, a buyer must receive a report from the seller at the time of purchase. The dealer must provide this report to the buyer and also submit the information to the IRS. The report must include:

• The dealer’s name and taxpayer identification number (TIN)
• The buyer’s name and TIN
• The vehicle’s VIN
• The vehicle’s battery capacity
• The date of sale
• The sale price

A buyer has two options for claiming the credit. The traditional method is to file IRS Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit, with an annual income tax return.

A newer option allows the buyer to transfer the credit to the dealer at the point of sale for an immediate discount or cash back. To do this, the buyer must attest to meeting all eligibility requirements. The dealer then registers the transfer through the IRS Energy Credits Online portal.

If the credit is transferred, the buyer must still file Form 8936 with their tax return. If the buyer ultimately fails to meet eligibility requirements, such as the MAGI limits, the credit amount received at the dealership is subject to recapture. This means the amount would have to be paid back to the IRS.