What Is Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit?
The Internal Revenue Service (IRS) offers tax credits to the owners and manufacturers of certain plug-in electric drive motor vehicles. This includes passenger vehicles, light trucks, and two-wheeled vehicles.
Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit is an IRS form that allows the owners of certain electric vehicles to claim a tax credit on their tax return. The form can be used as long as the filer's new plug-in electric vehicle that they purchase meets certain eligibility requirements.
The credit for these types of vehicles can reach up to $7,500, depending on the capacity of the electric battery:
- An EV purchased in or before 2022 with a five-kilowatt-hour battery is eligible for a $2,917 credit. The credit increases by $417 per additional kilowatt hour over 5 kWh up to a maximum of $7,500.
- For vehicles purchased between Jan. 1 and April 17, 2023, the base amount for the credit is $2,500 plus $417 for a vehicle with 7 kWh hours of battery capacity and $417 for every kWh beyond 5 kWh for a maximum credit of $7,500.
- For vehicles purchased after April 18, 2023, taxpayers can receive $3,750 or a maximum credit of $7,500 depending on factors such as mineral and battery component requirements.
Key Takeaways
- Form 8936 is an IRS form taxpayers can use to claim a tax credit for an electric vehicle as long as they meet certain eligibility requirements.
- Internal Revenue Code 30D(a) determines the eligibility for four-wheeled cars and small trucks, as well as two-wheeled vehicles.
- The amount of tax credit depends on eligibility requirements and whether the vehicle was purchased in or after 2022, or in or after 2023.
- Your modified adjusted gross income and the cost of the vehicle must be below certain limits to qualify for the tax credit.
Who Can File Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit?
You must meet certain requirements to use Form 8936 and be eligible for the electric vehicle tax credit. These vary depending on when you bought your electric vehicle. There are different requirements for vehicles purchased in or before 2022 compared to those purchased in and after 2023.
Internal Revenue Code (IRC) Section 30D(a) determines tax credit eligibility for cars and trucks with at least four wheels and a gross vehicle weight of fewer than 14,000 pounds. The vehicle must draw energy from a battery with at least five kilowatt-hours (seven kilowatt-hours if purchased in or after 2023) that can be recharged from an external source.
The tax credit phases out for a manufacturer’s four-wheeled vehicles over the one-year period beginning with the second calendar quarter after the 200,000th sale. This does not apply to any vehicles sold after 2022.
During the phaseout period, qualified vehicles are still eligible for 50% of the credit if purchased within the first two quarters, or 25% of the credit if purchased in the third or fourth quarter. Vehicles purchased by that manufacturer beyond the phaseout period are no longer eligible for the tax credit. Due to new legislation, vehicles sold after 2022 are no longer subject to the phaseout.
The American Taxpayer Relief Act of 2012 modified IRC Section 30D to include a provision for certain two- and three-wheeled vehicles purchased in 2012 or 2013. The credit for these types of vehicles was 10% of the purchase price, up to $2,500. This tax credit was only for vehicles purchased and driven in one of these two years.
Used Electric Vehicles
The vehicle must be new at the time of purchase. This means there is no tax credit for used electric vehicles for the 2022 tax year. However, beginning on Jan. 1, 2023, if you buy a qualified used electric vehicle from a licensed dealer, the vehicle may be eligible for the tax credit. The vehicle must have been purchased for $25,000 or less.
The used EV tax credit is worth 30% of the sale price, up to a maximum credit of $4,000. It is non-refundable, so if it is bigger than what you owe in taxes, you cannot get the difference back as a tax refund or apply it to future taxes.
To qualify for the used electric vehicle tax credit, the vehicle must have a manufacture date at least two years earlier than when you bought it. For vehicles purchased in 2023, the vehicle must be from 2021 or earlier. Additionally, to qualify for the credit, you cannot:
- Buy the vehicle for resale
- Be the original owner
- Be a dependent on another person's taxes
- Have claimed a clean vehicle credit in the three years before you bought the used vehicle
The first year you can claim the tax credit for used electric vehicles is when you file your 2023 taxes in 2024. Keep in mind that used EVs purchased before Jan. 1, 2023, are not eligible.
Leased Electric Vehicles
The credit cannot be claimed by the drivers of leased vehicles. It will instead go to the manufacturer offering the lease. The tax credit may be partially factored into the lease costs, so the customer may see some benefit.
Hybrid Vehicles
Plug-in hybrid vehicles also qualify for the tax credit. For example, the 2021 Toyota Prius Prime qualified for the tax credit due to its plug-in recharging capabilities. However, the standard 2021 Toyota Prius did not because the vehicle does not plug in to recharge.
Toyota, Tesla, and General Motors hit the sales limit of 200,000 qualified vehicles. A vehicle purchased from these three manufacturers, no matter its battery size, will not qualify for the tax credit through the 2022 tax year.
How to File Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit
Although car and motorcycle manufacturers may advertise the electric vehicle tax credit as a discount on the vehicle, it is not an upfront discount to you as the buyer. It simply reduces your tax liability for the year when you purchase the qualified vehicle as long as you qualify. You must still pay the full cost of the vehicle as negotiated at the time of sale.
However, when you file your taxes for the year, you will fill out Form 8936 to receive your tax credit and direct dollar-for-dollar reduction of your taxes owed.
Because it is a nonrefundable tax credit, you will only receive a credit to the point that your tax liability is reduced to zero. You will not receive the balance back beyond that point. Once you have completed the form, you can submit it along with your taxes when you file them for the year.
Are Electric Vehicle Tax Credits Available in 2022?
Yes, electric vehicle tax credits for both four- and two-wheeled vehicles are available in 2022. The eligible fully electric motorcycle or car or plug-in hybrid model car must have been purchased through a qualified manufacturer. Toyota, Tesla, and General Motors vehicles do not qualify for 2022 taxes filed in 2023. Be aware: Tax laws are subject to change regarding eligibility for electric vehicle tax credits.
How Many Times Can You Claim the Electric Vehicle Tax Credit?
You can only claim the credit once for each qualifying vehicle. The tax credit must be claimed in the year when you purchased and began to use your new fully electric or plug-in hybrid model car or fully electric two-wheeled vehicle.
However, if you purchase a separate qualified fully electric or plug-in hybrid vehicle in another year, or two separate qualified cars in the same year, then you can still claim the tax credit for the other vehicle. It is not a once-in-a-lifetime tax credit in that sense.
Is There an Income Limit for Claiming the Electric Vehicle Tax Credit?
You may not claim the electric vehicle tax credit if your modified adjusted gross income exceeds certain thresholds. If you are married and filing jointly, a qualified surviving spouse, or a qualified widow(er), the MAGI limit is $300,000. If you file as a head of household, the MAGI limit is $225,000. For all other taxpayers, the income limit is $150,000. You must use the lesser of your MAGI from either the year your qualifying vehicle was placed in service or the previous year.
Are There Price Limitations for Claiming the Electric Vehicle Tax Credit?
For new clean vehicles, the manufacturer's suggested retail price must not be higher than $80,000 for vans, sport utility vehicles, and pickup trucks. For all other new vehicles, it may not be higher than $55,000. Starting in 2023, used vehicles must be purchased for $25,000 or less to qualify.
How Do I Know if My Vehicle is Eligible for a New Clean Vehicle Credit?
You can visit the fueleconomy.gov website to see if your vehicle qualifies as a new clean vehicle in order for you to claim the credit. The site also gives you an idea of the amount of your tax credit.
The Bottom Line
Filing IRS Form 8936 with your taxes allows you to claim a tax credit for purchasing an electric plug-in vehicle. Keep in mind that this credit does not apply to electric bikes as they don't usually reach the required mph speeds. This tax credit is intended to make buying an electric vehicle more affordable. The credit ranges from $2,500 to $7,500, depending on the capacity of the electric battery.
Starting in 2023, qualified used vehicles can also qualify for a smaller tax credit. To qualify for the credit, your modified adjusted gross income and the cost of the vehicle must be within certain limits. The tax credit is nonrefundable.
