New Incentives to Trade in your Gas Guzzler
The Inflation Reduction Act of 2022 encourages taxpayers to consider switching from gas powered vehicles to electric vehicles by expanding the New Clean Vehicle Credit and introducing the Used Clean Vehicle Credit. Requirements of both credits include purchasing the vehicle from a dealer, using the vehicle primarily within the United States, and not purchasing the vehicle for resale. The credits are nonrefundable; however, any unused amount will be carried forward.
The New Clean Vehicle Credit amount is limited to $7,500. The Used Clean Vehicle Credit amount is 30% of the sales price up to a maximum amount of $4,000. The vehicles must meet certain qualifications. For details on the qualifications, see our article titled There Are No Credits like Energy Credits.
The U.S. Department of Energy website is available to confirm the qualification of a vehicle. Dealers are required to report the tax credit information to the IRS and provide a copy of the IRS’s approval to the purchaser.
Starting in 2024, taxpayers can opt to monetize the $7,500 New Clean Vehicle Credit by transferring it to the dealer at the time of purchase. This will lower the amount the taxpayer pays for the car; however, this should be used with caution as the credit may need to be repaid if the taxpayer’s modified adjusted gross income exceeds $300,000 for joint filers, $225,000 for heads of household, or $150,000 for singles.
If you have questions on any of these credits, speak with your tax professional at KT to see how it may benefit you.