2023 Federal EV Tax Credit

Buying a new car is a big financial decision. In most cases, this is something that you’ll be paying for at least the next few years, meaning it’s important that you carefully consider the financial impact. However, there are some programs in place that can help make affording your next vehicle easier, especially if you want an electric vehicle (EV). Below, we’ll discuss some of the taxes and fees you can expect when purchasing a new vehicle, along with the 2023 federal EV tax credit that can save you thousands of dollars.

Taxes and Fees Associated With Getting a New Vehicle

Person sitting on the floor going through Tax Statements

There are several taxes and fees that you may need to pay when you purchase your next vehicle. It’s important to learn about these additional costs so that you can properly plan out your budget. Sales tax is the tax that’s imposed on the purchase of a new car, and it’s calculated as a percentage of the purchase price. The sales tax rate varies from state to state, and some states may have additional local sales taxes. For Ohio, the state sales and use tax rate is 5.75%.

In some states, luxury or excise taxes may apply to high-end or expensive cars. Luxury taxes are a percentage of the value of the car, while excise taxes are based on the weight of the vehicle. Most EV vehicles will not have an excise tax, but some higher-end models may have a luxury tax.

In addition to taxes, other fees associated with purchasing a new car include the registration fee, dealer documentation fee, destination fee, and title fee. Registration fees are the fees that car owners pay to register their vehicles with the state’s Department of Motor Vehicles (DMV). The registration fee covers the cost of the license plate and registration paperwork. The amount of the registration fee varies depending on the state and the weight of the vehicle.

The dealer documentation fee covers the cost of preparing and filing the paperwork associated with the purchase of the vehicle. The manufacturer charges the destination fee to cover the cost of transporting the car from the factory to the dealership. The title fee is paid to the DMV to transfer ownership of the vehicle.

What Is the Federal EV Tax Credit?

To help make it easier to afford EVs, the federal government provides an EV tax credit on some EVs. With this program, you receive credit when it comes time to file your taxes, which can either lower the amount you owe the government or increase your refund amount.

The Inflation Reduction Act (IRA), which was passed in 2022, covers several different topics from climate change prevention to prescription drug prices, but also focuses on three big incentives to buyers. Section 30D gives buyers up to $7,500 in tax credits for purchasing a new clean vehicle based on certain requirements. This credit applies to all vehicles purchased from 2023 to 2032. Section 25E gives tax credits to buyers of used clean vehicles based on certain requirements. Lastly, Section 45W gives commercial buyers for light vehicles up to $7,500 in tax credits for acquiring a new or used clean vehicle with fewer requirements than 30D.

According to the Internal Revenue Service, to qualify for this credit, you need to meet a few requirements. First, you must be buying the vehicle for yourself and not for the purpose of reselling it. Second, you must use the vehicle primarily in the U.S. Finally, your modified adjusted gross income cannot exceed:

  • $225,000 for heads of households.
  • $300,000 for married couples filing jointly.
  • $150,000 for all other filers.

You can use your adjusted gross income from either the year in which you buy the vehicle or the previous year, whichever amount is less. As long as your adjusted gross income is below the threshold in one of the years, you can claim the credit.

In addition to these personal requirements, there are also requirements for the vehicle. To be eligible for the credit, the vehicle must have a battery capacity of at least 7 kilowatt hours. It must also weigh less than 14,000 pounds and be made by a qualified manufacturer. Finally, the vehicle needs to undergo final assembly in North America and have an MSRP under $80,000 for vans, SUVs, and trucks and under $55,000 for all other vehicles.There are fewer restrictions for the 45W in that it focuses on providing credits for vehicles used for business purposes. However, for commercial vehicles, There is no MSRP cap, income cap, and no assembly requirements.

A helpful resource that you should utilize is the Online VIN Eligibility Decoder, which allows you to enter a VIN to determine if the new EV is eligible for the Federal EV Tax Credit and the amount of the credit applicable to the vehicle.

To help, the NADA created a list of vehicles that are included in the $7,500 Tax credit, which include:

  • Cadillac Lyriq EV (2023-2024)
  • Chevrolet Blazer EV (2024)
  • Chevrolet Bolt EUV (2022-2023)
  • Chevrolet Bolt EV (2022-2023)
  • Chevrolet Equinox EV (2024)
  • Chevrolet Silverado EV (2024)
  • Ford F-150 Lightning, standard range (2022-2023)
  • Ford F-150 Lightning, extended range (2022-2023)
  • Tesla Model 3, performance (2022-2023)
  • Tesla Model Y, all-wheel drive (2022-2023)
  • Tesla Model Y, long range (2022-2023)
  • Tesla Model Y, performance (2022-2023)
  • Chrysler Pacifica PHEV (2022-2023)
  • Lincoln Aviator Grand Touring PHEV (2022-2023)

The vehicles that qualify for the $3,750 credit are as followed:

  • Ford E-Transit (2022-2023)
  • Ford Mustang Mach-E, standard range (2022-2023)
  • Ford Mustang Mach-E, extended range (2022-2023)
  • Tesla Model 3, standard range rear-wheel drive (2022-2023)
  • Ford Escape PHEV (2022-2023)
  • Jeep Grand Cherokee PHEV 4xe (2022-2023)
  • Jeep Wrangler PHEV 4xe (2022-2023)
  • Lincoln Corsair Grand Touring PHEV (2022-2023)

To determine if you or your vehicle is eligible for the 2023 federal EV tax credit, we highly recommend speaking with the finance department at your local dealership. These financial experts not only review your personal situation to determine your eligibility but also provide you with a list of vehicles that are eligible for the credit.

Setting Up Your Home for an Electric Vehicle

To drive an EV, you’ll likely want an at-home charging station. EVs rely heavily on their battery, which you’ll need to regularly recharge as it gets low. There are public charging stations available all over Ohio for when you’re on the go, but charging your vehicle at home is much more convenient.

Depending on the type of EV you get, setting up a charging station at home may be as simple as finding a free outlet. In some cases, you may want to get a Level 2 charging station installed in your home, which we highly recommend you leave to a qualified electrician. We also recommend that you talk with your power company, as some offer rebates for installing an EV charging station in your home.

FAQ’s in regards to the EV Tax Credit

What is Modified Adjusted Gross Income (MAGI) and how do I figure that out?

  • your MAGI is the part of your gross income that is subjected to taxes decided by the IRS. Is it found on your 1040 tax return form, found in line 11. You should work with your tax advisor to determine what your modified adjusted gross income would be.

If I just purchased the 2023 Chevy Bolt EV, do I qualify for the Federal tax credit?

  • Yes, this will qualify for the full $7,500 tax credit for 2023. The amount that you actually qualify for depends on the above factors, including your MAGI. you may want to work with your tax advisor to see what you fully qualify for.

Are you able to deduct the tax credit from the purchase price of the vehicle?

  • No – if you do qualify for the Tax Credit, it is not available as a refund or discount towards MSRP. in 2024, you may be able to transfer the credit to dealers at the point of sale, however that is not yet fully guaranteed.

Find Your Next EV at Cochran Cars

If you’re interested in getting an EV, or if you want to learn more about the 2023 federal tax credit for EVs, Cochran Cars is here to help. Located in Youngstown, OH, we have a wide selection of new and pre-owned vehicles available, including many electric and hybrid vehicles. Our goal is to make the buying process as quick and simple as possible.

To get started, simply browse through our current inventory online today. You can also apply for financing to save yourself some time at the dealership or get an estimate value for your trade-in. When you’re ready, contact us to schedule a visit to our dealership. Once you’re here, we’re happy to take you out for a test drive or answer any questions you may have. Thank you for visiting Cochran Cars, and we look forward to helping you find your next EV in Ohio.

 

Image by Kelly Sikkema is licensed with Unsplash License