Desktop: 2023 Form 8936 - Clean Vehicle Credit

Overview

Beginning in tax year 2023, Form 8936, Clean Vehicle Credits, is used to calculate electric vehicle (EV) and fuel cell vehicle (FCV) tax credits. Credits for purchases of these two kinds of vehicles were previous calculated on separate forms:

• From 2009-2022, Form 8936 was used to calculate the Qualified Plug-in Electric Drive Motor Vehicle Credit.
• From 2005-2022, Form 8910 was used to calculate the Alternative Motor Vehicle Credit.

Additionally, the Inflation Reduction Act of 2022 expanded the Clean Vehicle Credit to include previously owned clean vehicles purchased from a licensed dealer.

Three kinds of vehicle credits are reported on Form 8936:

• New Clean Vehicle
• Previously Owned Clean Vehicle
• Qualified Commercial Clean Vehicle (see here for IRS information on this credit)

In TaxSlayer Pro, when entering the details about the vehicle you'll specify which of the three kinds of vehicles this is. Each type of vehicle has its own requirements for qualifying and calculating the credit.

For a new clean vehicle and a previously owned clean vehicle, the taxpayer is eligible to take the clean vehicle credit if their current year or prior year modified AGI is within the statutory limits:

• Single and MFS: $150,000.
• MFJ and QSS: $300,000.
• HOH: $225,000.

Modified AGI equals AGI plus the housing exclusion or housing deduction on Form 2555, plus any income from Puerto Rico or American Samoa that was excluded.

Form 15400

For both new and previously owned clean vehicles, at the time of sale the dealer must report the sale to the IRS on Form 15400 and give the taxpayer a copy of the form.

If the taxpayer hasn't got a copy of Form 15400, the vehicle may not be eligible for the new or previously owned clean vehicle credit. For example, only dealers complete Form 15400, so a vehicle not purchased from a dealer isn't eligible for the credit.

However, for a new vehicle the dealer won't complete this form if the vehicle's MSRP exceeds the statutory limitation, if the vehicle's final assembly was not in North America, or if the buyer is unwilling to provide the dealer with their taxpayer identification number.

Similarly, for sales of previously owned vehicles the dealer won't complete Form 15400 if the sales price exceeds $25,000, if the vehicle is less than two model years old, or if the buyer is unwilling to provide the dealer with their taxpayer identification number.

Be sure the vehicle is eligible for the credit

The taxpayer is not eligible for the Clean Vehicle Credit if they are leasing the vehicle (only the lessor is eligible for the credit) or if they purchased the vehicle for resale.

Don't complete Form 8936 if the taxpayer hasn't got a copy of Form 15400. Aside from this form you can check whether or not the vehicle model is otherwise eligible for the Clean Vehicle Credit at fueleconomy.gov:

• For new clean vehicles purchased in 2023 or after, click here.
• For used clean vehicles purchased in 2023 or after, click here.
• For new clean vehicles purchased before 2023, click here.

Additionally, the Form 8936 instructions are an important resource as they detail all the requirements for each clean vehicle credit.

Business use caveats

Qualified commercial clean vehicles are not subject to the MSRP limitation, and the credit that calculates won't be limited by the taxpayer's modified AGI.

For a new clean vehicle being used in business, in its entry in the depreciation module be sure to reduce its basis by the amount of the tentative credit on Schedule A (Form 8936) line 9.

Completing Form 8936

When completing Form 8936, you will complete Schedule A (Form 8936) for each vehicle placed in service during the tax year. Schedule A is a two-page form that provides details about the vehicle and calculates the credit for the vehicle.

When completing the form for a new clean vehicle in TaxSlayer Pro, several of the Schedule A menu lines include the words "business/investment" as that is the terminology used on the form, but this section must be completed for every taxpayer claiming the new clean vehicle credit irrespective of whether or not the vehicle was used for business purposes.

To complete Form 8936 for a clean vehicle in TaxSlayer Pro, from the Main Menu of the tax return (Form 1040) select:

• Credits
• Qualified Plug-in electric Drive Motor Vehicle Credit

If the only credit in the return is being passed through on Schedule K-1, select New Clean Vehicle Credit from Passthru or Part V - Commercial Clean Vehicle Credit from Passthru as appropriate. There's no need to enter information about the vehicle since the passthrough entity completed Form 8936 for it.

Otherwise, if the taxpayer purchased the vehicle, enter information about the vehicle:

• Edit Qualified Vehicle Credit Information - Click New and enter the vehicle's information:
  • Year of Vehicle
  • Make of Vehicle
  • Model of Vehicle
  • Vehicle Identification Number
  • Date Placed in Service - The date the taxpayer took possession of the vehicle.
• Vehicle was used primarily outside the United States - Check this box if the vehicle was mainly used outside the US, with an exception being for a vehicle that travels from and back to the US. (Note that if this box is checked, no credit is allowed.)
• Check one of the following three check boxes:
  • VIN entered belongs to a new clean vehicle placed in service during the tax year - Check this box if the vehicle was purchased new.
  • VIN entered belongs to a previously owned clean vehicle acquired after 2022 and placed in service during the tax year - Check this box if the vehicle was previously owned.
  • VIN entered belongs to a qualified commercial clean vehicle acquired after 2022 and placed in service during the tax year - Check this box if the vehicle is used exclusively in the taxpayer's business. See here for more information commercial clean vehicles.

When finished with the above information, click OK to arrive at the Vehicle Information Menu. The items in this menu will vary depending on which kind of vehicle this is. Click the menu below for the type of vehicle the credit is for.

Select Exit to return to the Vehicle Information window where you began the process. If you have another vehicle to enter, click New and repeat the above steps, otherwise click Exit.

The Clean Vehicle Credits Menu

Complete the additional menu lines in the Clean Vehicle Credits Menu as needed:

• Prior Year Modified Adjusted Gross Income - Select this line and enter a few amounts from last year's tax return to calculate the taxpayer's prior year modified AGI:
  
  • Prior Year Adjusted Gross Income - Form 1040 line 11.
  • Prior Year Excluded Puerto Rico Income - Enter the amount of any Puerto Rico income that was excluded.
  • Prior Year Form 2555 Housing Exclusion - Form 2555 line 45.
  • Prior Year Form 2555 Housing Deduction - Form 2555 line 50.
  • Prior Year Form 4563 Amount - Form 4563 line 15 (American Samoa income).
• New Clean Vehicle Credit from Passthru - If the taxpayer received a new clean vehicle credit from a passthrough entity on Schedule K-1, select this line, click New, and enter the entity's EIN and name, the amount of the credit, and the type of business activity for general business credit purposes, whether passive or nonpassive.
• Part V - Commercial Clean Vehicle Credit from Passthru - If the taxpayer received a commercial clean vehicle credit from a passthrough entity on Schedule K-1, select this line, click New, and enter the entity's EIN and name, the amount of the credit, and the type of business activity for general business credit purposes, whether passive or nonpassive.
• Type of Credit Activity - If the taxpayer is claiming the commercial clean vehicle credit or has a business use percentage greater than 0% indicated on their new clean vehicle credit, specify here the type of business activity for general business credit purposes, whether passive or nonpassive.

Troubleshooting

No credit is calculating on Form 8936.

• There must be tax liability to apply the credit to (see the following question).
• If it's a new clean vehicle, two things are required:
  • You must indicate that it was acquired for use or to lease to others.
  • You must enter the tentative credit amount.
• If it's a previously owned clean vehicle, three things are required:
  • You must indicate that it was acquired for use or to lease to others.
  • You must enter the vehicle sales price.
  • The vehicle sales price cannot exceed $25,000.
• If it's a qualified commercial clean vehicle credit, four things are required:
  • You must indicate that the vehicle is subject to depreciation.
  • You must indicate that it was acquired for use or to lease to others.
  • You must enter the cost basis.
  • You must enter the incremental cost.

No credit is showing on Schedule 3

• The Clean Vehicle Credit is a nonrefundable credit. If Form 1040 line 18 equals $0, no credit is allowed.
  
  The new clean vehicle credit flows to Schedule 3 line 6f, and the previously owned clean vehicle credit flows to Schedule 3 line 6m. If Form 1040 line 18 is greater than $0 but no credit is flowing to Schedule 3, other nonrefundable credits are being applied against the tax liability before this credit so that there's no remaining liability to apply this credit to.

The full credit isn't being given

• The Clean Vehicle Credit is one of many nonrefundable credits applied against the tax liability calculated on Form 1040 line 18, and nonrefundable credits are generally applied against the tax liability in their order on Schedule 3 Part I.
  
  To diagnose why a smaller than expected amount of credit is being allowed, compare Form 1040 line 18 with Schedule 3 Part I. You'll see the nonrefundable credits in the return and the order in which they are being applied against the tax liability.
  
  Note that nonrefundable credits are not applied against any tax in Schedule 2 Part II. This includes self-employment tax, additional tax calculated on Form 5329, additional tax on HSA distributions, and many others.

Full credit is being given but their modified AGI is too high

• You didn't indicate their prior year modified AGI, so the prior year modified AGI being zero makes them qualify. To ensure they qualify and to avoid a reject, enter their prior year modified AGI information. The form requires it.

I don't see the menu item asking if "Vehicle Acquired for use or to Lease to Others".

• You didn't indicate in the Vehicle Details Entry window what kind of vehicle this is, whether a new clean vehicle, a previously owned clean vehicle, or a qualified commercial clean vehicle.

I'm not being asked for the sales price of the vehicle.

• The sales price of the vehicle is only asked in the context of a previously owned clean vehicle.

I don't see where to enter the tentative credit amount.

• If this is a new clean vehicle, you have either not answered or answered No to the question "Vehicle Acquired for Use or to Lease to Others".
• If this is a previously owned clean vehicle, there is no tentative credit. Instead, the credit is calculated based on the sales price.

Exiting the Form 8936 menu I'm told "You must Select the Type of Credit Activity."

• This is either a new clean vehicle with some percentage of business use entered, or it's a qualified commercial clean vehicle. The business portion of the credit is a general business credit, and you must specify whether the business activity is passive or nonpassive. Make this selection in the Clean Vehicle Credits Menu under Type of Credit Activity.

In the Vehicle Details Entry window I select one of the three kinds of vehicles (new, previously owned, or commercial), but the selection keeps being removed.

• You have indicated that the vehicle was used primarily outside the United States. No credit is allowed if this is true.

I'm being told "Invalid VIN".

• You have miskeyed the VIN. Double-check your work against Form 15400.

Note: This a guide on entering clean vehicle credit information in Form 8936 in the TaxSlayer Pro program. It is not intended as tax advice.

Additional Information:

IRS: 2023 Form 8936 instructions

IRS: FAQ about the Clean Vehicle Credit

Desktop: 2022 and prior: Form 8936 - Qualified Plug-in Electric Drive Motor Vehicle Credit

Desktop: Business Returns: 2023 Form 8936 - Clean Vehicle Credit