At Copper Leaf Financial we work closely with our clients, providing recommendations on many things including big purchases. For example, when it is time to buy a car we will often discuss leasing vs. buying, electric vs fuel, and we will also provide strategies around reducing income to meet eligibility for tax credits when possible.
On August 16th, President Biden signed into effect the Inflation Reduction Act. A major goal of this act is to combat global climate change by encouraging individuals to purchase “clean” vehicles, such as electric or plug-in hybrid, and moving production to North America.
If you are in the market for a new vehicle, there are important changes to the qualifications of eligibility for the Federal tax credit as it pertains to clean vehicles.
· Existing $7,500 electric vehicle “EV,” tax credit extended from 2022 to 2032
· Income limits (modified adjusted gross income) imposed to qualify for the tax credit – $150,000 for Single Filers, $300,000 for Married Filing Jointly and $225,000 for Head of Household
· Large Vehicles (Vans, Trucks, SUVs) listed for over $80,000 do not qualify for the credit
· Cars listed for over $55,000 do not qualify for the credit
· New $4,000 EV tax credit or 30% of purchase price, whichever is lower
· Previously owned vehicle does not qualify for credit
· Income limits (modified adjusted gross income) imposed to qualify for tax credit – $75,000 for Single Filers, $150,000 for Married Filing Jointly and $112,500 for Head of Household
· Cars listed for over $25,000 do not qualify for the credit
· Clean Vehicles, including electric, plug-in hybrid and certain commercial vehicles
· Final assembly, and certain components, must be sourced and occur in North America.
A current list of eligible vehicles is maintained through the Department of Energy. https://afdc.energy.gov/laws/inflation-reduction-act
· Used vehicles are not required to meet the new vehicles’ North American sourcing/assembly requirement like new vehicles
Purchase vs Lease
· Credit only applies to purchased vehicles; lessor receives credit for leased vehicle but can be used as a negotiation point for lease terms
· Certain states, including Vermont, offer tax incentives regardless of leasing or buying
Purchased in 2022?
· Eligible for tax credit under prior rules if sales contract is signed before August 16, 2022; car may be delivered in 2023
· Car manufacturer caps eliminated in 2023, but in effect for new cars purchased between August 16, 2022, and December 31, 2022
How to get the credit?
· In 2024, dealerships will be offering the credit as a discount to the purchase price
· At tax filing, account for the credit for vehicle purchased in the previous year in partnership with your CPA or via form 8936
Please reach out to Copper Leaf Financial if you have any questions about this article. Another great resource for clean vehicle information is the Drive Electric Vermont website. Please note that the Inflation Act covers more than just clean vehicle changes, so if you have questions about the larger affect it has on you and your family, you can reach out to us at Copper Leaf Financial or contact your Tax Advisor. You can also reach out to Copper Leaf’s affiliated and separately registered CPA firm Davis & Hodgdon CPAs.
By Molly Passalacqua, Wealth Advisor, Certified Wealth Strategist (CWS®), Copper Leaf Financial