Claim Your Green Savings: IRS Credits Make Clean Vehicles and Clean Energy More Affordable
July 20, 2023 Tax Advisor

Recently, the IRS issued additional guidance on several credits included in the Inflation Reduction Act (IRA) and the CHIPS Act passed in 2022. These credits can benefit you if you’re considering purchasing a clean vehicle or investing in clean energy technologies. We’ve included a summary of the credits and the new guidance below.

Clean Vehicle Credit

This credit is for those buying an electric vehicle (EV) and allows a credit of up to $7,500 for the purchase of a new EV. To qualify for the credit, the EV must have both critical mineral and battery components made in the USA or certain trading partner countries, including South Korea, Japan, Canada, Mexico and Australia. For 2023, only 40% of these components need to be domestically sourced. Each future year will require an additional 10% domestic content.

The vehicle also needs to be assembled in North America. Despite concerns that the new rules would disqualify many vehicles, several manufacturers like Chevy, Chrysler, Jeep, Ford, Rivian, Tesla and Volkswagen have 2023 models that qualify for the credit.

Qualifying vehicles need to have MSRPs of under $80,000 for trucks, vans and SUVs, or $55,000 for cars. Buyers need to have Modified Adjusted Gross Income below $300,000 for married couples filing jointly, $225,000 for heads of household, or $150,000 for single filers.

Other tidbits on the modified credit include:

  • Credit is transferable to the dealer starting in 2024.
  • Credit includes fuel cell vehicles as well as electric and plug-in hybrid vehicles.
  • Battery capacity is required to be a small 4kwh.

Previously-Owned Clean Vehicle Credit

If you’re interested in buying a used electric vehicle, there’s good news for you too! You can get a credit of up to $4,000 or 30% of the vehicle’s cost, whichever is lower. To qualify, your AGI should be below $150,000 for married couples, $112,500 for heads of household, or $75,000 for single filers. The vehicle must be at least two years old by model year and can’t cost more than $25,000.

The credit is non-refundable, which means it cannot reduce your tax liability below zero.

Advanced Manufacturing Investment Credit (CHIPS Credit)

This newer credit aims to incentivize domestic semiconductor production. If you invest in an “advanced manufacturing facility” that produces semiconductors or semiconductor equipment, you can get a credit worth 25% of your investment. For corporations, this credit can directly reduce their income taxes. For other entities, you can receive a payment from the IRS. However, if you take this credit and expand capacity in a facility located in China or another foreign country of concern, there are some recapture rules.

Advanced Energy Project Credit

This credit supports the expansion of US manufacturing capacity for clean energy technologies and aims to reduce greenhouse gas emissions. The Department of Energy (DOE) and the IRS allocate this credit based on taxpayer submissions of proposed projects. To qualify, your project needs to involve ”Advanced Energy Property,” which can include any of the following:

  • Property designed for the production of energy from renewable sources (wind, geothermal, solar and water)
  • Fuel cells, microturbines, or energy storage systems
  • Electric grid modernization equipment
  • Property designed to capture, remove, use or sequester CO2 emissions
  • Property designed to produce energy conservation technologies (residential, commercial and industrial)
  • Refining equipment for fuels that are renewable or low emission
  • Electric or fuel cell vehicles and associated components and refueling infrastructure
  • Hybrid heavy vehicles and components

Projects that reduce greenhouse gas emissions by 20% or more involve the refining, processing or recycling of critical materials also qualify. These materials include rare earth metals, including aluminum, titanium, nickel, cobalt and others.

These credits were introduced to boost clean and green initiatives while promoting domestic production and supply chains. They can be beneficial in saving money while contributing to a sustainable future.

Remember, tax laws can be complex, so it’s always a good idea to consult with your BMF Advisor to see how these credits may apply to your specific situation. Happy saving and investing in a cleaner and greener future!

About the Authors

Michael A. Hydell
Michael A. Hydell
Senior Manager, Taxation Services


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