Used Clean Vehicle Credit:  What Is It, Who Qualifies, and How to Claim It

By Leonid Roudik, Fort Bliss Legal Assistance Office

Are you in the market for a used car under $25,000?  You might qualify for a tax credit of up to $4,000 from the IRS.  The Used Clean Vehicle Credit is a federal tax credit designed to make pre-owned clean energy vehicles more affordable.  This credit specifically applies to the purchase of pre-owned all-electric, plug-in hybrid, or fuel-cell electric vehicles.

How the credit works:

The credit equals 30% of the vehicle’s sale price.  However, the credit amount is limited to either 30% of the sale price or a maximum of $4,000, whichever is lower.  For example, a qualifying vehicle priced at $10,000 would be eligible for a $3,000 credit (30% of $10,000).

You can claim the credit either by filing Form 8936 with your annual federal tax return or by transferring the credit amount to a registered dealer at the time of purchase.  Because the credit is nonrefundable, you cannot get back more than your total tax liability.  For example, if you’re eligible for the full $4,000 credit but only owe $2,000 in federal taxes, you can only receive a refund of $2,000.  The remaining $2,000 is forfeited.  This is particularly relevant to service members, who often have lower taxable incomes due to tax-exempt pay, such as Basic Allowance for Housing.  To ensure that you receive the full value of the credit, it is strongly recommended to transfer the credit amount to a participating dealer at the point of sale.  When transferred, the full credit amount can be applied directly to reduce the vehicle’s purchase price, regardless of your tax liability.  If you transfer the credit, you must file Schedule A (Form 8936) along with your federal income tax return for the year in which the vehicle was purchased.  Please note that any unused credit cannot be transferred to future tax years.

Private sales between individuals do not qualify for this credit.  The vehicle must be sold by a licensed dealer registered with the IRS.  When purchasing a vehicle, be sure to obtain a time-of-sale report (also known as a seller’s report), which will include information such as the dealer’s name, address, VIN, make, model, placed-in-service date, and maximum credit.

Income requirements:

A key factor in determining eligibility for the credit is the buyer’s Modified Adjusted Gross Income.  It’s important to note that MAGI is not just total income.  MAGI is your Adjusted Gross Income from Form 1040, line 11, increased by specific amounts that are typically excluded from gross income for tax purposes, such as IRA contributions, student loan interest, and savings bond interest.  Complete instructions for calculating MAGI can be found at irs.gov/e-file-providers/definition-of-adjusted-gross-income.

The taxpayer’s modified adjusted gross income for either the current calendar year or prior year must not exceed (1) $150,000 for married individuals filing jointly or for surviving spouses, (2) $112,500 for heads of household, or (3) $75,000 for all other filers.

Vehicle Eligibility:

There are also important eligibility rules for the vehicle itself.  First, the model year of the vehicle must be at least two years older than the calendar year of purchase.  For example, if you buy a used vehicle in 2025, the newest eligible model year would be 2023.  Second, the sale must be the first qualifying transfer of the vehicle since August 16, 2022.  Transfers to and between dealers do not count.  Third, the sale price must be $25,000 or less before applying any down payment or the clean vehicle credit.  The sale price is the amount agreed to in a written contract at the time of sale, including any delivery charges and after the application of any incentives, but excluding separately stated taxes and fees required by State or local law. 

Charging:

While installation charging stations may be limited, the Army is working on developing on-base public charging infrastructure.  In the meantime, fast-charging options are often available off-base, and many vehicles can also be charged using a standard wall outlet.  Importantly, the credit applies not only to fully electric vehicles but also to plug-in hybrids with a battery capacity of at least 7 kilowatt-hours.  These hybrids combine a gas engine with a small electric motor to boost fuel efficiency.

 To learn more about the Used Clean Vehicle Credit, please visit https://www.irs.gov/credits-deductions/used-clean-vehicle-credit. 

To speak with an attorney in the Fort Bliss Legal Assistance Office on this or any other topic, please schedule an appointment by emailing usarmy.bliss.hqda-otjag.mesg.bliss-legal-assistance-office@army.mil, or calling (915) 568-7141 during LAO business hours.