Clean Vehicle Credit
Starting January 1, 2024, if you purchase either a new or used qualifying clean vehicle for personal use, then you can claim the Clean Vehicle Credit directly at the dealership at the point of sale.
This federal law change can provide a great benefit to help you purchase a qualifying clean vehicle, but there are some important tax considerations you must understand.
First, the credit you receive at the dealership is treated as an advance on a credit that you would otherwise claim on your federal income tax return. This is because the IRS pays the dealer the amount of the credit, up to $7,500 ($4,000 for used vehicles), and the dealer passes the credit on to you. Most dealers will encourage you to use the credit as part of your down payment for the vehicle.
Because the credit is an advance on a federal income tax credit, we must report the vehicle purchase and reconcile the credit on your personal income tax return at the end of the year.
The credit available for new vehicles requires that your adjusted gross income is equal to or less than $300,000 for either the year you purchase the vehicle or the prior year if you are married filing a joint return ($225,000 for head of household filers and $150,000 for all others). The income limitation for used vehicles is exactly half of these amounts for your filing status.
If your income is above the income limitation for both the year of purchase and the prior year, then any advanced credit you claim at the dealership must be repaid when you file your income tax return.
Second, the IRS will require dealerships to collect more information from you than they ordinarily would when selling a car. This additional information is provided to the IRS to help limit vehicle credit fraud. If you are uncomfortable with providing the additional information, then you are not required to claim the advanced credit at the dealership. You can wait until you file your income return to claim the credits if you want. However, if your overall tax liability is very low, it’s possible that claiming the credit at the dealership will provide a greater benefit to you.
If you claim the credit at the dealership, the dealership should submit your advanced credit application to the IRS and receive approval instantly. Be sure you obtain a copy of this credit approval before you complete the purchase. If your advanced credit application is denied by the IRS, then you cannot claim a tax credit for the vehicle when you file your income tax return.
The IRS has also created special rules related to the number of advanced credits you can claim each year, what happens if you return or resell an eligible vehicle within 30 days of taking delivery, eligibility for taxpayers who marry or divorce, and the availability of the credit for taxpayers who can be claimed as a dependent by someone else.
NPR Article: What to know about the $7,500 tax credit for electric cars
IRS Guidance on Clean Vehicle Credits
This federal law change can provide a great benefit to help you purchase a qualifying clean vehicle, but there are some important tax considerations you must understand.
First, the credit you receive at the dealership is treated as an advance on a credit that you would otherwise claim on your federal income tax return. This is because the IRS pays the dealer the amount of the credit, up to $7,500 ($4,000 for used vehicles), and the dealer passes the credit on to you. Most dealers will encourage you to use the credit as part of your down payment for the vehicle.
Because the credit is an advance on a federal income tax credit, we must report the vehicle purchase and reconcile the credit on your personal income tax return at the end of the year.
The credit available for new vehicles requires that your adjusted gross income is equal to or less than $300,000 for either the year you purchase the vehicle or the prior year if you are married filing a joint return ($225,000 for head of household filers and $150,000 for all others). The income limitation for used vehicles is exactly half of these amounts for your filing status.
If your income is above the income limitation for both the year of purchase and the prior year, then any advanced credit you claim at the dealership must be repaid when you file your income tax return.
Second, the IRS will require dealerships to collect more information from you than they ordinarily would when selling a car. This additional information is provided to the IRS to help limit vehicle credit fraud. If you are uncomfortable with providing the additional information, then you are not required to claim the advanced credit at the dealership. You can wait until you file your income return to claim the credits if you want. However, if your overall tax liability is very low, it’s possible that claiming the credit at the dealership will provide a greater benefit to you.
If you claim the credit at the dealership, the dealership should submit your advanced credit application to the IRS and receive approval instantly. Be sure you obtain a copy of this credit approval before you complete the purchase. If your advanced credit application is denied by the IRS, then you cannot claim a tax credit for the vehicle when you file your income tax return.
The IRS has also created special rules related to the number of advanced credits you can claim each year, what happens if you return or resell an eligible vehicle within 30 days of taking delivery, eligibility for taxpayers who marry or divorce, and the availability of the credit for taxpayers who can be claimed as a dependent by someone else.
NPR Article: What to know about the $7,500 tax credit for electric cars
IRS Guidance on Clean Vehicle Credits