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Take Advantage of New Green Vehicle Tax Credits to Reduce Your 2023 Freelance Tax Bill

The new season of cars are starting to roll onto dealership lots, and if a new car is in your future this year you may want to consider buying a new plug-in electric vehicle (EV) or fuel cell vehicle (FCV) to qualify for a clean vehicle tax credit.

Here is how to determine if your 2023 vehicle purchase will qualify and what the value of the credit may be:

  • You may qualify for a credit up to $7,500 if you buy a new, qualified plug-in EV or fuel cell electric vehicle (FCV).
  • The green vehicle tax credit is nonrefundable, which means you can’t get back more on the credit than you owe in taxes. You also can’t apply any excess credit to future tax years.
  • You can learn whether a green vehicle is a van, sport utility vehicle, pickup truck or other type.  Check out the IRS listing of qualified vehicles and manufacturers.
  • You can find your vehicle’s weight, battery capacity, final assembly location (listed as “final assembly point”) and VIN on the vehicle’s window sticker. To check online if a specific vehicle meets the requirements for final assembly location, you can go to the Department of Energy’s page on Electric Vehicles with Final Assembly in North America and use the VIN Decoder tool under “Specific Assembly Location Based on VIN.”

The Inflation Reduction Act of 2022 changed the rules for this credit for vehicles purchased from 2023 to 2032.

To qualify for the credit you must buy the vehicle for your own use primarily in the United States, not for reselling.

The recent updates to the regulations regarding the clean vehicle credit have further enriched it by:

  • Increasing the $500 lifetime tax credit limit for qualifying energy-efficient improvements to a residence is increased to an $1,200 annual tax credit.
  • Eliminating the manufacturing limit on qualifying electric vehicles, (currently this applies to General Motors, Tesla, Lexus, and Toyota electric vehicles) for the credit which used to be in place.
  • Adding an available electric vehicle credit for used electric vehicles of 30% or $4,000, whichever is lower, with AGI limits of $150,000 for married, $112,500 for head of household and $75,000 for single filers.

In addition, your modified adjusted gross income (AGI) may not exceed these thresholds to be eligible:

  • $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 one of the two years, you can claim the credit.

To claim the credit, you will need to file Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles) with your tax return. You will need to provide your vehicle’s VIN.

Ready to start the process of purchasing an electric vehicle in 2023? Now may be an ideal time to do it based on the tax incentives available. If you have questions, talk to a tax professional about whether your potential new clean vehicle purchase will qualify for this tax credit.

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Jonathan Medows, CPA

Jonathan Medows, CPA

Jonathan Medows is a certified public accountant licensed in New York, New Jersey, Maryland, and Pennsylvania. He is also a recognized expert in taxation for freelancers and the self-employed—often tapped for his expert knowledge and perspective on self-employment taxation by national and regional publications such as The New York Post, BusinessWeek, Forbes taxation blog, WebCPA, CPA Practice Advisor, and others. You can read some of Jonathan’s press coverage here.
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