The IRS released updated guidance on the American-made vehicle tax break. This article explains who qualifies, key documentation, and practical steps buyers and dealers should take.
What are the new American-made vehicle tax break rules?
The tax break is part of incentives tied to the Inflation Reduction Act. The IRS clarified how vehicle assembly, battery sourcing, and final assembly in North America affect eligibility.
Central to the new rules are component sourcing thresholds, income and price caps, and a step-by-step certification process. Buyers must check a vehicle’s qualification before claiming the credit.
Who qualifies under the American-made vehicle tax break rules?
Qualification depends on several factors including where the car is assembled and the origin of battery components. There are also buyer income limits and manufacturer suggested retail price (MSRP) caps.
Key eligibility points include:
- Final assembly in the United States or North America.
- Required percentage of battery components sourced from the U.S. or qualifying countries, phased in by year.
- Buyer adjusted gross income (AGI) below specific thresholds.
- New vehicle status—used vehicles have a separate set of rules.
Income and price limits to know
The IRS guidance reiterates income limits that prevent higher earners from claiming the full credit. For example, single filers and married filers have different AGI caps.
MSRP caps also matter: only vehicles under certain price points qualify for the full or partial credit. Check the current IRS tables or the manufacturer’s certification when making a purchase decision.
How the IRS defines American-made under the new rules
The IRS uses specific definitions for “final assembly” and “critical mineral” sourcing. It also provides a timeline for the battery component percentage requirements to increase over time.
Manufacturers must report compliance, and the IRS expects dealers to provide a worksheet or code confirming eligibility at the point of sale.
Documentation and dealer responsibilities
Dealers should supply Form 8936 information or an IRS-provided code to buyers. Buyers will need this documentation when filing taxes to claim the credit.
Keep the vehicle purchase agreement, VIN, and any manufacturer certification statements. These records help if the IRS requests proof during audit or review.
Step-by-step: How to check if a vehicle qualifies
Follow these practical steps before buying or claiming the credit. This reduces surprises at tax time.
- Check the manufacturer’s certification or IRS list of qualifying vehicles.
- Confirm the vehicle’s final assembly location is in North America.
- Review the battery component sourcing information for the model year.
- Confirm your AGI and the vehicle MSRP meet IRS thresholds.
- Obtain the dealer’s certification code and keep purchase documents.
Common questions about the American-made vehicle tax break rules
Buyers and dealers often ask about resale, leases, and trade-ins. The IRS clarifies that credits for leased vehicles are handled differently and often flow to the lessor, not the lessee.
If a buyer purchases a new qualifying vehicle and later sells or leases it, the original credit claim generally stands, but the buyer should track any potential recapture rules the IRS may apply in rare cases.
Starting with recent model years, the IRS phases in higher U.S. content and battery sourcing requirements, so a model that qualified one year might not qualify the next.
Real-world example: How the rules affect a buyer
Case study: Maria is considering a new electric SUV with an MSRP of $48,000. The manufacturer lists final assembly in Tennessee, and the model year documentation shows 55% qualifying battery components for that year.
Maria’s AGI is $85,000 as a single filer. Under the IRS rules and current thresholds, she checks the manufacturer’s certification, gets the dealer’s eligibility code, and confirms the vehicle is on the IRS qualifying list before purchase.
Because the vehicle meets assembly and battery sourcing thresholds and Maria’s AGI is below the cap, she can claim the eligible tax credit when filing, reducing her federal tax liability for the year.
Practical tips for buyers and dealers under the new rules
To avoid surprises, use these practical tips when evaluating the American-made vehicle tax break rules.
- Ask the dealer for the IRS certification code and keep it with your tax records.
- Check the IRS qualified vehicle list the model year of purchase.
- Verify your expected AGI and consider tax planning if you’re near the income limits.
- When leasing, ask who will claim the credit—the lessor or the lessee—and how it affects monthly payments.
Where to find official IRS information
Always confirm with IRS publications and the official IRS website for the latest tables and guidance. Manufacturers may post certifications, but the IRS publishes the final rules and thresholds.
Consider consulting a tax professional if you have a complex situation, such as business use, multiple vehicle purchases, or questions about recapture rules.
The IRS changes and clarifies rules regularly. Stay updated before you buy and keep thorough documentation to support any tax credit claim.
