Credit For Previously Owned Clean Vehicles
Credit Amount
A qualified buyer who acquires and places in service a previously owned clean vehicle after 2022 and before 2032 is allowed an income tax credit equal to the lesser of:
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$4,000 or
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30% of the vehicle's sale price. (Code Sec. 25E(a), as added by Act Sec. 13402(a))
Taxpayer Qualifications
Congress obviously did not wish for high-income taxpayers to qualify for this new credit, since they imposed income limits. Thus to qualify for the credit, a taxpayer's modified adjusted gross income (MAGI) for the year of purchase OR the previous year must not exceed the amounts shown in the following table.
MAGI means adjusted gross income increased by any amount excluded from gross income under Code Sec. 911 (foreign earned income and housing exclusions), Code Sec. 931 (income from Guam, American Samoa, or the Northern Mariana Islands), and Code Sec. 933 (income from Puerto Rico). (Sec. 30D(f)(10), Act Sec. 13401(f))
Be Careful Taxpayer Can Benefit - Care should be exercised to make sure a taxpayer can benefit from the credit especially since the credit is non-refundable and does not carry over to a subsequent year. The table below illustrates the 2023 tax liability based on the maximum MAGI for which the credit is allowed and compares that to the MAGI that will result in a $4,000 tax liability (enough to absorb the max credit for previously used clean EVs).
Example: Someone who files as head of household with a MAGI of $112,500 taking the standard deduction will have a tax liability of $13,875 and can easily absorb the maximum credit of $4,000. On the other hand a taxpayer with tax liability of $4,000, just barely enough to absorb the maximum credit of $4,000 would have a MAGI of $56,750.
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But also be aware that those with such low MAGIs may quite frequently also qualify for the EITC and Child Tax Credit and perhaps even other credits that can mitigate the benefit of the previously used clean EV credit.
Previously Owned Clean Vehicle
A previously owned clean vehicle is a motor vehicle that meets the following requirements:
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The model year of which is at least two years earlier than the calendar year in which the taxpayer acquires it.
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Original use of which starts with a person other than the taxpayer,
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Is acquired in a qualified sale, and
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Has a gross weight rating of less than 14,000 pounds.
(1) -
Be an eligible fuel cell vehicle or plug-in EV with a battery capacity of least 7 kilowatt hours.
(1) -
Be for use primarily in the United States
(1) If included in the list of qualifying vehicles these requirements are met.
Previously Leased Vehicle
The question sometimes arises if a taxpayer buys out the lease of a previously leased vehicle, does the lease buyout qualify for the used vehicle credit? The answer to that question is no. The taxpayer fails #2 in the definition of a previously owned clean vehicle.
List of Qualifying Vehicles
The IRS maintains an index of qualified manufacturers and previously owned clean vehicles. Search the Internet for Manufacturers and Models of Qualified Used Clean Vehicles at https://www.irs.gov/credits-deductions/manufacturers-and-models-of-qualified-used-clean-vehicles. The index includes over 20 manufacturers. The following illustrates the listing for Ford Motor Company:
Qualified Sale - A qualified sale (Sec 25E(c)(2), Act Sec. 13402(a)) is a sale of a motor vehicle:
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By a dealer
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For a price of $25,000 or less, and
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Which is the first transfer since the Act's enactment to a qualified buyer other than the original buyer of the vehicle. For example, a vehicle purchased in 2023 would need to be a model year of 2021 or older.
Qualified Buyer - A qualified buyer (Sec. 25E(c)(3), Act Sec. 13402(a)) is an individual who:
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Purchases the vehicle for use and not for resale
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Is not a dependent of another taxpayer
*, and -
Has not been allowed a credit for a previously owned clean vehicle during the three-year period ending on the sale date.
* Even if they have sufficient
income to be required to file. It makes no difference if the parent chooses not to
claim the child since the dependency deduction is still "allowable"
to the parent.
Dealer Report - A dealer is a person licensed to sell motor vehicles in a state, the District of Columbia, the Commonwealth of Puerto Rico, any other territory or possession of the United States, an Indian tribal government, or any Alaska Native Corporation.
The dealer reports required information to the buyer at the time of sale and to the IRS, That information includes:
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Dealer's name and taxpayer ID number
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Buyer's name and taxpayer ID number
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Sale date and sale price
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Maximum credit allowable under IRC 25E
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Vehicle identification number (VIN), unless the vehicle is not assigned one.
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Battery capacity