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Clean Vehicle and Solar Tax Credits Thumbnail

Clean Vehicle and Solar Tax Credits

Tax

By:  Chrissy Israel - Financial Planner  &  Lisa M. Wood, CPA, MT - Director of Tax


These credits encourage manufacturers to build vehicles and their parts in the United States. Most of the changes are effective starting in 2023, however, there is one significant change for vehicles purchased after August 16, 2022.

Electric Vehicles (“EVs”) purchased before August 16, 2022 may qualify for a tax credit up to $7,500. The credit is available for the first 200,000 automobiles sold by each manufacturer. Tesla, Chevrolet and GM have exceeded the 200,000 limit and are no longer eligible for tax credits.

EVs purchased after August 16, 2022 will qualify for the credit if final assembly occurred in North America. The Department of Energy has a list on their website of 2022 and 2023 vehicles that qualify. The list can be found here:  https://afdc.energy.gov/laws/electric-vehicles-for-tax-credit

If the EV was ordered before August 16, 2022, and delivery was after this date, a tax credit may be available even if the final assembly was not in North America. To qualify, there must have been a written binding contract to purchase the vehicle. The IRS guidelines indicate a nonrefundable deposit or a 5% down payment will qualify.

Beginning in 2023, the EVs’ battery must meet certain requirements to qualify for the credit. The maximum credit is comprised of two amounts:

  1. Critical Minerals credit worth $3,750: To qualify, at least 40% of the battery’s critical minerals must be extracted or processed in the United States or in a county with which the U.S. has a free trade agreement. The threshold increases each year and is 80% by 2027.
  2. Battery Components credit worth $3,750: To qualify, at least 50% of the battery’s components must be manufactured or assembled in North America. The threshold increases each year and is 100% by 2029.

Other changes in 2023 include limits on taxpayer income and cost of vehicle. Taxpayers with income over $300,000 married filing jointly, or $150,000 single, will not be eligible for the credit. In addition, the cost of the vehicle must not be greater than $80,000 for vans, pickup trucks, and SUVs or $55,000 for all other vehicles. The 200,000 vehicle limit on the number of credit-eligible vehicles was eliminated.

In 2024, EVs will not qualify for the credit if any of the battery components were manufactured or assembled by a foreign entity of concern (e.g., China). Also in 2024, taxpayers will be permitted to transfer the credit to the dealer, which will allow the credit to be treated as a point-of-sale rebate.

IRA 2022 created two new tax credits for clean vehicles. A credit is available starting in 2023 for previously owned vehicles and is 30% of the sales price up to $4,000. Taxpayers will qualify for the credit if their income is below $150,000 married filing jointly or $75,000 single. The cost of the EV must be $25,000 or less. There is also a new credit for commercial clean vehicles for 15% of the vehicle cost (30% if the vehicle does not have a gas or diesel powered internal combustion engine). The credit is limited to $7,500 for light-duty vehicles.  Heavy-duty vehicles may qualify for tax credits up to $40,000.

If you installed a Solar PV system in the years 2020 and 2021, you are eligible for a 26% tax credit. With the passing of an extension of the Residential Clean Energy Tax Credit in August of 2022, if the system is installed in 2022-2032, you will be eligible for a 30% tax credit. The installation of the Solar PV System must be placed in service for the credit to be available. For example, if building starts in late 2023, but is not completed until early 2024, the tax credit will be for the year 2024. There is not a maximum limit on the credit. The credit does reduce back to 26% in 2033, then to 22% in 2034, and disappears in 2035 unless Congress makes a change to extend this again. 

You may use this with other Federal energy tax credits as well. This means if you are purchasing Energy Star Certified doors, air-sealing insulation, windows, etc., you can receive up to 30% of the cost, or the applicable max limit for that product, along with the credit for the installation of a Solar PV System. 

Eligibility: 

To be eligible for the Solar Tax credit, your Solar PV System must have been installed and running between Jan. 1, 2017- December 31, 2023. It must be installed on US property; this does include a secondary residence. You must own the Solar PV System, either by purchasing with cash or financing through a loan. You cannot receive the credit by leasing the system or paying an electric company to install/purchase the system. Additionally, the system must be new or being used for the first time. You cannot use the credit for making updates to your current, active system. 

Expenses included: 

There are many expenses included when using the credit.

  • Solar PV panels or PV Cells, including cells used to power attic fans but not the fan itself 
  • Contractor labor costs
    • Onsite Preparation
    •  Assembly
    •  Original installing - including permitting fees, inspection costs, and developer fees.
  • Balance of system equipment including wiring, inverters, and mounting equipment 
  • Energy Storage Devices that meet certain requirements
    • You can claim the credit for these even if you buy and install them a year or more after you install the solar system.
  • Sales tax on certain expenses

It is important to note that if you are financing the Solar PV System interest is not an included expense for the Solar Tax Credit.

Other Credits 

Each State has its own specific guidelines when it comes to clean energy rebates regarding Solar Energy. Please consult with your tax advisor or planner if you have questions regarding State rebates. Additionally, there may be a rebate from your electric utility company as an additional incentive to install a Solar PV System. If this is the case, you would need to subtract the rebate from the cost of the system, then calculate the solar tax credit. 

If you have any questions, please contact our office at 937-435-2742. 

Information Sources: