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The IRS has been busy lately, making updates to tax codes that impact individual filers across the nation. One that is really turning heads involves a rather large chunk of your tax bill being knocked off if you have a new Tesla – $7,500 to be exact. Here are the details of this tax change, who qualifies, and how to reap the benefits.
Inflation Reduction Act of 2022
As a valiant attempt to stave off the blow that inflation has inflicted, the government passed the Inflation Reduction Act in 2022. On a high level, the new law is meant to lower energy costs, carbon emissions and give credits to taxpayers for owning certain “clean vehicles”.
Beginning January 1, 2023 anyone who is deemed eligible with a qualifying vehicle (more information below) will be eligible for a $7,500 credit on their 2023 taxes.
In true IRS fashion, there are stipulations to this grand gesture. The qualifications are listed below:
- The vehicle must be for personal use (not for resale)
- The vehicle must be used primarily in the U.S.
- Owners must fall within the disclosed Adjusted Gross Income (AGI) limitations
- The vehicle must fall within certain MSRP price caps (Both new and used)
Adjusted Gross Income Limits
- $300,000 for married couples filing jointly
- $225,000 for heads of households
- $150,000 for all other filers
Eligible Tesla Vehicles
If you’re planning on ordering a Tesla to qualify for the $7,500 credit, now is the time. The credit is subject to change sometime in March 2023. Meaning there’s a possibility it could be reduced. Here are the eligible models and the price caps.
- Model 3: $55,000
- Model Y (5 seats): $55,000
- Model Y (7 seats): $80,000
This price is not all-inclusive! Any equipment physically attached to the vehicle at the time of delivery counts, but the total price excludes software features, accessories, taxes, and fees.
2023 Tesla Model Y + $7,500 Federal Tax Credit
As an added incentive Tesla is offering its Model Y for $52,990 (down from it’s original price of $65,990) which now puts it in contention for the tax credit. Plus, Tesla went even further and lowered the rest of its new inventory allowing the Model 3 ($43,990) and The Model 3 Performance ($53,990) to be eligible for the tax incentive as well.
EV Credit: How to Apply
The application is one step and can be completed with readily available information. The IRS only requires you to file Form 8936 with your individual tax return. To complete the form you’ll be asked for:
- Your full name
- Year, make and model of your vehicle
- The Vehicle I.D. number (VIN)
- If it was used for a business and what percentage was used
- How many wheels the vehicle has
If you were on the fence about going electric, now would be the time to take the plunge. Buyers who opt in for the Model Y incentive could get a max of $13,000 off the regular base price, plus a $7,500 tax credit for a maximum of $20,500 in total savings.
Frequently Asked Questions
No, the EV credit is non-refundable. So the credit will only reduce your bill if you owe money. If you are owed a refund the credit will not apply.
No, as long as the vehicle meets the IRS qualifications. You can receive the tax credit.
No, there is a separate credit for used electric vehicles. However, the qualifications are different, as is the credit amount, so read through the IRS stipulations for the guidelines on claiming The Used Clean Vehicle Credit.