The Section 30D Tax Credit for Clean Vehicles

The federal government offers a tax incentive for purchasing new environmentally-friendly vehicles, known as the Clean Vehicle Credit under Section 30D of the Internal Revenue Code. Modified by the Inflation Reduction Act of 2022, the credit applies to qualifying vehicles purchased from 2023 through 2032. It is designed to encourage the adoption of electric and other clean energy transportation. To determine eligibility for this tax benefit, both the buyer and the vehicle must meet a series of specific rules.

Buyer Eligibility Requirements

To qualify for the Clean Vehicle Credit, a buyer must meet criteria related to their income and the vehicle’s intended use. A buyer’s modified adjusted gross income (MAGI) cannot exceed certain thresholds in the year of purchase. The MAGI limit is $300,000 for married couples filing a joint tax return, $225,000 for heads of household, and $150,000 for all other filers. If a buyer’s income surpasses these caps, they are ineligible for the credit.

The vehicle must be purchased for the buyer’s own use and not for the purpose of resale. This rule ensures the credit incentivizes personal adoption of clean vehicles. The vehicle must also be used primarily within the United States. These requirements ensure the tax credit is directed toward U.S. residents personally using clean transportation.

Vehicle Eligibility Requirements

A vehicle must satisfy several requirements to be eligible for the Section 30D credit. The manufacturer’s suggested retail price (MSRP) cannot exceed $80,000 for vans, sport utility vehicles, and pickup trucks. For all other vehicle types, such as sedans, the cap is $55,000. This limit applies to the MSRP as set by the manufacturer, not the final negotiated purchase price.

The vehicle’s final assembly must take place within North America. It must also be powered by a battery with a capacity of at least seven kilowatt-hours (kWh) and have a gross vehicle weight rating below 14,000 pounds. These technical specifications target vehicles with meaningful electric-driving capability for personal or light commercial use.

Eligibility also depends on two battery sourcing requirements. The first pertains to the percentage of the value of the battery’s critical minerals that are extracted or processed in the United States or a country with a U.S. free trade agreement. The second relates to the percentage of the value of the battery’s components that are manufactured or assembled in North America. Beginning in 2024, vehicles are ineligible if they contain battery components from a Foreign Entity of Concern (FEOC), and this restriction extends to critical minerals in 2025.

Because these rules and supply chains evolve, the list of eligible vehicles can change. The most current source for consumers is the official government website, FuelEconomy.gov. This resource provides a definitive list of vehicles that qualify for the credit. Prospective buyers should consult this list before making a purchase to confirm a vehicle’s eligibility.

Calculating Your Potential Credit

The maximum credit is $7,500, but the final amount depends on the vehicle meeting the two battery sourcing requirements mentioned previously. A vehicle earns $3,750 for meeting the critical minerals requirement and another $3,750 for meeting the battery component requirement. A vehicle can qualify for the full $7,500 by meeting both standards, or $3,750 by meeting only one. If a vehicle fails to meet either sourcing standard, it is not eligible for any credit, even if it satisfies all other criteria.

The Clean Vehicle Credit is nonrefundable, which means it can reduce a taxpayer’s federal income tax liability to zero, but no part of the credit can be paid out as a cash refund. For instance, if a taxpayer with a $5,000 tax liability qualifies for a $7,500 credit, the credit will eliminate the tax bill. However, the remaining $2,500 is forfeited and cannot be carried forward to a future tax year.

How to Claim the Credit

To claim the Clean Vehicle Credit, a buyer must receive a time-of-sale report from the dealership at the time of purchase. This report contains information the IRS uses to verify the transaction, including the vehicle identification number (VIN), the date of sale, and the MSRP. The dealer simultaneously submits this report to the IRS, and receiving a copy is a prerequisite for the buyer to claim the credit.

Starting in 2024, buyers have two methods for receiving the credit’s benefit. The first option is to transfer the credit to the dealership at the point of sale for an immediate discount on the vehicle’s purchase price. To do this, the buyer must attest to their eligibility at the dealership. The dealer then applies the credit amount as a down payment or price reduction and is later reimbursed by the IRS.

The second method is to claim the credit on an annual tax return. If a buyer chooses this route, they will file IRS Form 8936, Clean Vehicle Credits, with their federal income tax return for the year they take possession of the vehicle. The information needed to complete this form is on the time-of-sale report. This method applies the credit against the buyer’s tax liability for the year.