Plug-in hybrid vehicles (PHEVs) are a great option for drivers who aren't ready to go fully electric, but want to reduce their fuel costs and pollution on all their local trips. PHEVs qualify for the federal electric vehicle tax incentive. However, the rules are complicated. We try to break down the requirements as simply as possible. This post has two sections:
New PHEV requirements
IMPORTANT: If the car you want does not qualify for the tax incentive, you should consider leasing. Leased PHEVs are eligible for the commercial version of the federal tax credit. Leased PHEVs don't need to meet the strict sourcing and assembly requirements, so many dealerships are encouraging people to lease PHEVs and passing the $7,500 credit to them.
A taxpayers's adjusted gross income (AGI) must be below the following thresholds to be eligible for the new PHEV car credit:
You can use your AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your AGI is below the threshold in one of the two years, you are eligible, but you must select a new PHEV that meets the following vehicle requirements.
MSRP (manufacturer's suggested retail price) is the retail price of the automobile suggested by the manufacturer, including options, accessories and trim but excluding destination fees. It does not include taxes or other fees added on by the dealer. In order to qualify, the price of the new PHEV must be below these thresholds:
New PHEVs must contain battery and critical minerals sourced from specific parts of the world. If the car meets both critical mineral and battery requirements, it's eligible for the full $7,500 tax credit. If it meets only one of the two, it's eligible for $3,750 tax credit.
Manufacturers are quickly adjusting operations to match these requirements, so the list of cars that qualify is changing rapidly. For the most up to date list, check out the Department of Energy's website, which you can filter to just PHEVs. You'll see a list of cars and in the "Credit Amount" column, how much they qualify for.
New PHEVs must have final assembly within North America. When purchasing the car, ask the seller to confirm where it was assembled. You can also ask for the car's VIN (vehicle identification number) and plug it into the Department of Energy's VIN checker.
You'll get a result that looks like this:
Finally, at the time of sale, you must confirm the following:
- You buy the vehicle new. New means it hasn't previously been purchased, registered, titled, or used for any purpose. If you're buying a used vehicle, see the Used PHEV requirements section.
- The seller must report required information to you and to the IRS at the time of sale. Sellers are required to report your name and taxpayer identification number to the IRS for you to be eligible to claim the credit.
If you meet the threshold for AGI, choose a vehicle that is below the price cap, meets sourcing requirements, assembly, and sales requirements, you can receive the following credit on your taxes:
Used PHEV requirements
A taxpayers's adjusted gross income (AGI) must be below the following thresholds to be eligible for the used PHEV car credit:
You can use your AGI from the year you take delivery of the vehicle or the year before, whichever is less. In addition, you must:
- Not be claimed as a dependent on another person’s tax return
- Not have claimed another used clean vehicle credit in the 3 years before the purchase date
If you meet the requirements above, you are eligible, but you must select a used PHEV that meets the following requirements.
In order to qualify, the price of the used PHEV must be below the following threshold:
Used PHEVs must meet a number of requirements in order to be eligible for the credit. For the most up to date list, check out the Department of Energy's website. You'll see a list of cars that looks like this:
Age and transfer requirements
Used PHEVs have a few additional requirements to qualify:
- Car model must be at least 2 years old
- Not have been transferred to another buyer after August 16, 2022
The sale qualifies only if:
- You buy the vehicle from a dealer. A dealer is a person licensed to sell motor vehicles by the government.
- The dealer reports required information to you and to the IRS at the time of sale. Required information includes: dealer's name and taxpayer ID number, buyer's name and taxpayer ID number, sale date and sale price, maximum credit allowable under IRC 25E, Vehicle identification number (VIN), battery capacity
If you meet the buyer requirements, choose a used vehicle that is below the price cap, meets the vehicle, age, and transfer requirements, you can receive the following credit on your taxes:
Note that you must have a federal tax liability to claim the credit. For example, if you owe $10,000 in federal taxes and qualify for the full $7,500, you can claim the full $7,500. However, if you only owe $5,000 in federal taxes, you can only claim $5,000.
To claim the credit, you'll fill out Form 8936 with your federal taxes.
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