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Considering a New or Pre-Owned Electric Vehicle? Read This First to See If You Will Benefit From a Tax Credit
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Article HighlightsNew 2023 Clean Vehicle RulesIncome QualificationsMAGI LimitsNew Clean Vehicle CreditsU.S. Department of Energy Index of Qualifying VehiclesPreviously Owned Clean Vehicle CreditIRS Index of Qualifying Previously Owned Clean VehiclesDefinition of a Qualifying Previously Owned Clean VehicleQualifying Previously Owned Clean Vehicle SaleDealer ReportWhat Tax Benefit Will These Credits ProvideCredit Transfer to a Dealer2023 brings with it a whole new set of rules related to qualifying for the tax credit for purchasing a new or used electric vehicle. Among the changes that must be navigated are buyer income limitations, vehicle assembly and component limitations and even vehicle price caps.So before you purchase a vehicle with the expectation that you will qualify for a tax credit, and whether that tax credit will really provide any financial benefit, you may find it appropriate to first review all the limits.MAGI Limit - The first thing to determine is if your income is too high to claim a credit. If it is, you need not read any further since you won’t qualify for the credit.Even this gets a little tricky because the tax code allows you to base the income qualification on either your current year (year you buy the vehicle) or the prior year. The reason the law was written that way is to provide some level of certainty since the current year’s income is uncertain, while the prior year’s is already known.Making things even more complicated, your income is measured by your modified adjusted gross income (MAGI). Generally an individual’s MAGI is the same as their AGI which appears on line 11 of your 2022 1040 or 1040-SR. However, some individuals may have excluded foreign or possessions income which must be added back to arrive at their MAGI.Thus to qualify for a credit, a taxpayer’s MAGI for the year of purchase OR the previous year must not exceed the amounts shown in the following table.MAGI LIMITFor the Purchase of a:Buyer’s Filing StatusNew Clean Vehicle, Hybrid or Fuel Cell VehiclePreviously Owned Clean VehicleMarried Taxpayers Filing Jointly or Qualifying Surviving Spouse$300,000$150,000Head of Household$225,000$112,500All Other Filing Statuses$150,000$75,000If your MAGI is equal to or less than the limit, then you will qualify for a credit provided the vehicle you are planning to purchase also qualifies. There are different qualifications for new vehicles and previously owned (used) vehicles.New Vehicles - The qualifications for new vehicles include the requirement they be assembled in North America, the vehicle’s manufacturer’s suggested retail price (MSRP) must be less than $80,000 for vans, pickups, and SUVs, and $55,000 for others, and must have a minimum battery capacity of 7 kilowatts or greater. In addition, for sales on or after April 18, 2023, a vehicle must meet certain critical mineral and battery component regulations. Those regulations require 40% of these components to be extracted or processed in the United States or in any country with which the United States has a free trade agreement, or recycled in North America. The percentage will increase until 2026 at which time the percentage will top out at 80%. The goal being to eliminate auto makers from reliance on certain foreign sources for these materials.Luckily, the U.S. Department of Energy website provides an online tool to search for qualifying vehicles. It provides the amount of credit the vehicle will qualify for (maximum $7,500). Although it lists the MSRP cap for each vehicle, you as a buyer will need to verify the MSRP for the specific vehicle which can be lower or higher depending upon the upgrades or accessories included with the vehicle.
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Tax and Financial Insights
by NR CPAs & Business Advisors
2026 IRS Mileage Rates: Key Updates and Insights
The IRS has rolled out the inflation-adjusted mileage rates for 2026, offering taxpayers an efficient way to claim deductions for vehicle-related expenses incurred for business, charity, medical, or moving purposes. These adjustments reflect the continued economic shifts impacting car operation costs.
Effective January 1, 2026, the new standard mileage rates are established as follows:
- Business Travel: Increased to 72.5 cents per mile, inclusive of a 35-cent-per-mile depreciation allocation. This marks a rise from the 70 cents per mile rate set for 2025
- Medical/Moving Purposes: Reduced slightly to 20.5 cents per mile, down from 21 cents in the previous year, reflecting the variable cost considerations.
- Charitable Contributions: Consistent at 14 cents per mile, a fixed rate unchanged for over a quarter-century.
As is typical, the business mileage rate considers the integral fixed and variable costs of automobile operation. Meanwhile, the medical and moving rates remain contingent on variable expenses as determined by the IRS study.
It is critical to note that the One Big Beautiful Bill Act (OBBBA) held firm on disallowing moving expense deductions except for specific cases within the Armed Forces and intelligence community, marking a substantial shift since 2017.
When engaging in charitable work, taxpayers might opt for a direct expense deduction over the per-mile method, covering gas and oil costs. However, comprehensive upkeep and insurance costs are non-deductible expenses.
Business Vehicle Use Considerations: Taxpayers can alternatively compute vehicle expenses using actual costs, which might benefit from shifting depreciation rules, particularly through bonuses and first-year advantages. Keep in mind, however, reverting from actual cost calculations to standard rates in subsequent years is restricted, particularly per vehicle protocol and when exceeding four vehicles in concurrent use.
Additionally, parking, tolls, and property taxes attributable to business can be deducted independently of the general rate, an often-overlooked advantage by many business owners.
Tax Strategies for Employers and Employees: Reimbursements based on the standard mileage framework, providing the right documentation is in place, remain tax-free for employees. Meanwhile, the elimination and continued prohibition of unreimbursed employee deductions continue, with particular exceptions offered to qualified personnel across specific occupations.
Opportunities for Self-employed Individuals: Entrepreneurs remain eligible for deductions on business-related vehicle use via Schedule C, with potential to account for business-use interest on auto loans.
Heavy SUVs and Deduction Advantages: Heavier vehicles exceeding 6,000 pounds but under 14,000 pounds open opportunities for substantial tax deductions through Section 179 and bonus depreciation avenues. The lifecycle of such a vehicle bears implications on recapturing initially claimed deductions, urging cautious tax planning.
For professional guidance on optimizing your vehicle-related tax deductions and understanding their implications on tax strategies, contact our office in Coral Gables, Florida, where expert advice and strategic insights are just a call away.
Educator's Deduction Reform: Key Changes Under OBBBA
The One Big Beautiful Bill Act (OBBBA) introduces significant enhancements for educators' tax deductions starting in 2026, offering both strategic opportunities and planning considerations for educators who qualify. With the reinstated itemized deduction for qualified unreimbursed expenses, educators have a broader spectrum of financial relief. This is complemented by the retention of the $350 above-the-line deduction, allowing educators to maximize their tax benefits by selectively allocating expenses between these avenues.
Understanding the nuances of these changes is crucial for educators and financial advisors alike. The dual-option deduction strategy can potentially enhance tax efficiency, thereby aligning with broader financial planning goals.
At NR CPAs & Business Advisors, based in Coral Gables, Florida, our expertise in tax preparation and planning provides invaluable support to educators navigating these changes. Our comprehensive approach, combined with personalized advice from our experienced team, ensures compliance and optimization in line with the latest tax legislations.
Given these updates, it is imperative to engage with seasoned professionals to fully leverage your deduction strategies. Contact us today to streamline your tax planning under OBBBA's new guidelines and maximize your deductions for upcoming tax years.
