What Is IRC 30D and How Does the Clean Vehicle Credit Work?

The Inflation Reduction Act reshaped the federal electric vehicle (EV) tax credit, now called the Clean Vehicle Credit under Internal Revenue Code 30D. This incentive aims to make EVs more affordable while promoting domestic production and reducing reliance on foreign supply chains.

Claiming the credit isn’t automatic—eligibility depends on income, vehicle specifications, and how the credit is applied. Understanding these factors helps buyers avoid issues when filing taxes.

Basic Eligibility Criteria

To qualify for the Clean Vehicle Credit, the vehicle must be purchased for personal use, not resale. The IRS may scrutinize transactions that seem structured for resale, particularly if the vehicle is sold soon after purchase.

The credit applies only to new vehicles, not used or leased ones. Leasing may still offer financial benefits through lower monthly payments, but the tax credit goes to the leasing company. Some lessors may pass on the savings through reduced lease costs, but this isn’t guaranteed.

The vehicle must be purchased from a U.S. dealer, as private sales do not qualify. Buyers must also take delivery in the same tax year they intend to claim the credit. Delays in manufacturing or shipping could push delivery into the following year, affecting eligibility.

Vehicle Requirements

Eligible EVs must be assembled in North America. Some models are produced in multiple locations, so buyers should verify the final assembly site using the National Highway Traffic Safety Administration’s VIN decoder.

Battery composition is another key factor. At least 50% of the battery’s critical minerals must be sourced from the U.S. or a country with a free trade agreement, with this threshold increasing annually. Additionally, a minimum percentage of battery components must be manufactured or assembled in North America. Automakers must certify compliance, and the U.S. Department of Energy provides an updated list of eligible vehicles.

Price limits also apply. Vans, SUVs, and pickup trucks must have a manufacturer’s suggested retail price (MSRP) of $80,000 or less, while sedans and hatchbacks cannot exceed $55,000. These caps include optional features but exclude taxes and fees. Higher-end trims exceeding the limit do not qualify, even if lower trims of the same model do.

Income and Liability Restrictions

The Clean Vehicle Credit has income limits to prevent high earners from claiming the benefit. For 2024, the modified adjusted gross income (MAGI) must not exceed $300,000 for married couples filing jointly, $225,000 for heads of household, and $150,000 for single filers. These limits apply to either the year of purchase or the prior year, whichever is lower. Taxpayers can check their MAGI on Form 1040, line 11, adjusting for excluded foreign income, tax-exempt interest, and certain deductions.

The credit is non-refundable, meaning it can only offset a taxpayer’s federal income tax liability. If the credit exceeds the tax owed, the excess cannot be carried forward or refunded. For example, a taxpayer eligible for the full $7,500 credit but with only $5,000 in tax liability will lose the remaining $2,500. Buyers should estimate their tax obligation before purchasing an EV with the expectation of receiving the full benefit.

Filing Steps

Claiming the Clean Vehicle Credit requires proper documentation. Buyers must obtain a seller-provided report at the time of purchase, including the vehicle identification number (VIN), battery capacity, and confirmation that the car meets federal requirements. Dealers must submit this information to the IRS, and buyers should keep a copy for their records.

Taxpayers claim the credit by filing IRS Form 8936, “Qualified Plug-in Electric Drive Motor Vehicle Credit,” alongside their federal tax return. The form requires details such as the VIN, purchase date, and credit amount, which must align with IRS records. Any discrepancies or missing information can cause delays or audits. Electronic filing is recommended, as the IRS processes digital submissions more efficiently than paper returns.

Possible Grounds for Denial

Several factors can lead to a denied claim.

Incorrect or missing documentation is a common issue. If the dealer fails to submit the required report to the IRS or provides inaccurate details, the claim may be rejected. Buyers should verify that all information, including the VIN and purchase date, matches IRS records before filing.

Claiming the credit on an ineligible vehicle is another frequent mistake. Some models may lose eligibility if they no longer meet battery sourcing or assembly requirements due to supply chain changes. The IRS updates its list of qualifying vehicles regularly, so buyers should confirm eligibility at the time of purchase.

Errors in reporting income or tax liability can also lead to denial. If a taxpayer incorrectly reports their MAGI or overestimates their tax obligation, they may find they do not qualify for the credit despite purchasing an eligible vehicle. Ensuring accurate financial records can help avoid this issue.