If you are in the market for a new (not used) electric vehicle this holiday season, you may delay your purchase until 2024.
Under the Inflation Reduction Act, consumers can choose to transfer their new clean vehicle credit of up to $7,500 to the car dealer beginning on January 1, 2024. This allows buyers to reap the benefits of the tax credit immediately without having to wait until they file their tax returns. Not only will this alleviate the anxiety of waiting to see if you did everything correctly to receive the credit, but it will also potentially save thousands of dollars in interest payments if you plan on financing the vehicle. Since the up-front purchase price is now reduced, the amount needing to be financed is also reduced. This is a huge benefit considering the high-interest rate environment we currently find ourselves in. Furthermore, since the tax credit is nonrefundable, you could be limited on the total credit you receive based on your actual tax liability. By receiving the tax credit upfront, you are bypassing this limitation.
Who Qualifies:
You may qualify for a credit of up to $7,500 if you buy a new, qualified plug-in EV or fuel cell electric vehicle (FCV). The Inflation Reduction Act of 2022 changed the rules for this credit for vehicles purchased from 2023 to 2032.
The credit is available to individuals and their businesses.
To qualify, you must:
- Buy it for your own use, not for resale
- Use it primarily in the U.S.
In addition, your modified adjusted gross income (AGI) may not exceed the following:
- $300,000 for married couples filing jointly
- $225,000 for heads of households
- $150,000 for all other filers
You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your modified AGI is below the threshold in 1 of the two years, you can claim the credit.
Source: https://www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after
It is important to note that even though the credit can now be received up front, the buyer will still need to attest to the dealer that they met all the eligibility requirements listed above. Taxpayers will have to directly repay the full value of the transferred tax credit to the IRS when filing their taxes if they exceed the applicable modified adjusted gross income limitation. So, if you are unsure whether you meet this requirement, reach out to your accountant at Machen McChesney.
Additional Advice from Machen McChesney:
If you decide to take advantage of this change and receive your tax credit upfront from the car dealership, it is important to pay close attention to the sales paperwork. Since car buyers will now be able to receive these price reductions up front, it is entirely possible that dealerships will try to tack on additional costs and fees to the top line number to take advantage of the situation. To be sure, always check the car manufacturer’s website to see the manufacturer’s suggested retail price (MSRP) and compare it to the dealer’s price. Dealer fees such as documentation fees and destination charges are normal and typically are unavoidable. However, be on the lookout for additional fees such as “market adjustment fees.” Dealers will sometimes charge market adjustment fees when the market demand for a particular car is high or when the vehicle cost is being artificially reduced through government incentives. These fees are not regulated and are completely negotiable.
Disclaimer: Below are eligible vehicles current as of 11/7/23. Eligibility is constantly changing, so it is important to confirm with your car dealer prior to your purchase decision. You can also check a vehicle’s eligibility at fueleconomy.gov.
Eligible Vehicles
For more information about the above article or other individual tax services, contact Eric Perry, CPA, by calling (334) 887-7022 or leaving us a message below.
