Uncategorized Archives - Still River Financial Planning

How the One Big Beautiful Bill Act Will Impact Your Taxes

Joe Calvetti — Fri, 15 Aug 2025 00:43:20 +0000

Congress recently passed the One Big Beautiful Bill Act, which brings a number of significant tax changes that will affect almost everyone’s tax return this year and going forward.

This is an overview of the key changes that will have the most wide ranging impact:

Changes Effective in 2025

Higher Standard Deduction – Permanently

The standard deduction has been increased for 2025 and will no longer revert to pre-2017 levels. This means more taxpayers will likely continue using the standard deduction instead of itemizing deductions.

New Deduction for Seniors

Taxpayers aged 65 or older can deduct an additional $6,000 per person. This deduction begins phasing out at $150,000 of modified adjusted gross income (MAGI) for joint filers and $75,000 for single filers. This deduction will expire in 2028.

State & Local Tax (SALT) Deduction Expanded

The SALT deduction cap has increased from $10,000 to $40,000 – this includes state and local income and property taxes. However, this only benefits those who itemize deductions, and the benefit phases down for incomes over $500,000.

New Tip Income Deduction

A new deduction allows up to $25,000 of tip income to be deducted, with phaseouts starting at $150,000 MAGI (single) or $300,000 (married). This deduction is available from 2025 to 2028.

Overtime Pay Deduction

You can now deduct the portion of your overtime earnings that is above and beyond your standard pay rate – up to $12,500 (single) or $25,000 (married). This also phases out at the same income levels as above and applies from 2025 to 2028.

Auto Loan Interest Deduction

Interest on new car loans taken out in 2025 or later may be deductible, up to $10,000. This begins to phase out at $100,000 MAGI (single) or $200,000 (married). Only new vehicles qualify.

End of Energy Efficiency Tax Credits

Credits for electric vehicles will end on Sept. 30, 2025. Credits for solar panels and other energy efficient home improvements will expire at the end of 2025.

Changes Effective in 2026

Mortgage Insurance Premiums (PMI) Deductible Again

PMI will once again be deductible, but you’ll need to itemize to claim this.

New Rules for Charitable Giving

You’ll only be able to deduct charitable contributions (if you itemize deductions) that exceed 0.5% of your adjusted gross income (AGI).

Charitable Deduction for Non-Itemizers

A new charitable contributions deduction allows up to $1,000 (single) or $2,000 (joint) in cash donations to be deducted even if you don’t itemize.

Reduced Deductibility of Gambling Losses

Starting in 2026, only 90% of gambling losses (up to the amount of winnings) will be deductible.

High-Income Itemized Deduction Limitation

For those in the 37% tax bracket, itemized deductions will be gradually reduced, up to 2/37 of your total deductions.

Introduction of “Trump Accounts”

Beginning July 2026, you can contribute up to $5,000 per year into a special savings account for children under 18. The government will provide a $1,000 contribution for children born in 2025 through 2027. There is still a lot that remains to be seen on exactly how this account type will work and what the benefits will be.

Dependent Care FSA Increase

Annual contribution limits for Dependent Care FSAs will increase from $5,000 to $7,500.

There are many more tax changes that are part of this bill, but these are the items that are most impactful and relevant. If you have any questions about these or any other changes you’ve heard about, feel free to let me know.

Joe Calvetti is a CPA, CFP®, and the founder of Still River Financial Planning, a comprehensive, fee-only financial planning firm that specializes in working with young families and professionals. Click here to learn more about how we work with clients.

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Disclaimer: The information provided above is for educational purposes only and should not be considered financial, legal, or tax advice. You should consult with a professional for advice specific to your situation.

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2 Simple Steps For Dealing With Market Volatility

Joe Calvetti — Mon, 05 May 2025 20:50:53 +0000

The stock market has been extremely volatile lately, and it can be unsettling to see large decreases in your account balances over the course of a day or week.

Following these two steps should help you navigate these uncertain times:

Make sure any money you have invested in the stock market is invested for the long-term. Short-term savings shouldn’t be invested because of the unpredictability of the market over shorter time periods.
Remember that short-term volatility is part of the plan. It’s part of the price you pay for long-term growth in the stock market. So as hard as it can be, do your best to stay the course.

As Warren Buffett says, “Investing is simple, but not easy”.

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What Do You Need Right Now?

Joe Calvetti — Fri, 26 Jul 2024 01:26:47 +0000

James Clear writes a great weekly newsletter, and in a recent version he shared the following thought about happiness:

“You will never find one answer to what makes you happy. There are many answers, and they change based on your current state.

People need to relax, but if all you do is sit on the beach, it gets old. People find meaning in work, but if all you do is work, it gets exhausting. People benefit from exercise, but if all you do is exercise, it gets unhealthy.

Happiness will always be fleeting because your needs change over time. The question is: what do you need right now?”

That key question of “what do you need right now?” is incredibly important in your financial life as well. Your financial needs change over time, which is why financial planning is always an evolving process:

You should be investing your savings very differently in your 30’s than in your 60’s.
Almost everyone needs life insurance if someone else is relying on your income, but you might not need it after kids have moved out and are independent.
Your estate plan and beneficiaries should look much different if you have no kids, young kids, or adult kids.
And the way you think about taxes changes drastically if you move from a high taxable income to a low taxable income. Or if you switch from being a W-2 employee to being self-employed.

So remember that a set it and forget it mindset is not the best way to approach your finances. Our needs are always changing.

Joe Calvetti is a CPA and the founder of Still River Financial Planning, a comprehensive, fee-only financial planning firm that specializes in working with young families and professionals. Click here to learn more about how we work with clients.

Are you interested in staying up to date on new articles and other news from us? Sign up for our newsletter or follow us on Facebook and Instagram.

Ready to learn more about how we can work together? Schedule an introductory call.

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How Often Should You Check Your Credit Score?

Joe Calvetti — Fri, 17 Nov 2023 00:00:00 +0000

A good credit score is important when it comes to buying a car, a house, and even when applying for a new job or insurance policy.

However, more important than checking and knowing your actual score is consistently reviewing your detailed credit reports. Each of the three major credit bureaus (Experian, TransUnion and Equifax) allow you to check your credit report for free.

Recently, a pandemic era policy allowing you to request your credit report from each bureau once per week was made permanent. This is a big change from the previous rules which only allowed you to pull your credit reports once per year.

Why check your credit reports?

These credit reports summarize your personal credit history – including how long you’ve had credit cards open, the amounts you currently owe on loans and credit cards, and your payment history.

Incorrect information that negatively impacts your credit score can make it harder for you to qualify for loans or for the lowest rates available.

When reviewing the reports, you want to make sure the information is complete and accurate. If there are issues, you should contact the credit bureau and the company who is reporting the incorrect information – which could be a credit card company or other lender. This FTC web page provides details on how to do this.

When to check your credit reports

I recommend reviewing your credit reports from each credit bureau at least once per year. Of course you can now do this much more frequently, which certainly can’t hurt, but once a year is typically sufficient. And there are a couple instances where checking your credit more regularly makes sense:

Before a major purchase – if you plan to buy a house or a car in the near term, check your credit now so that you don’t run into any surprises when you begin applying for loans.

If you suspect you’ve been the victim of identity theft – review your credit reports if you have suspicious credit card activity or have seen any other signs of possible identity theft.

You can request free credit reports by visiting this website: AnnualCreditReport.com.

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3 Steps to Get Your Financial Life in Order

Joe Calvetti — Fri, 03 Nov 2023 00:00:00 +0000

I work with a lot of people who are doing some of the right things when it comes to saving and managing their finances, but they have a lot going on. Maybe it’s kids, a growing career, multiple financial goals, or some combination of it all.

Of course everyone has specific concerns, pain points, and objectives when it comes to financial planning. But for just about every person I talk to, there is a need to simplify, optimize, and protect when it comes to their financial situation. Here’s how it works:

Simplify and Organize

If you’re 10+ years into your career, there is a good chance you have accumulated some financial clutter. Bank accounts that you don’t use, 401(k)’s from previous employers, a budget you created 5 years ago that’s no longer relevant. Consider taking steps to do the following:

Close down bank accounts you no longer need.
Decide what to do with old 401(k)’s.
Get an understanding of how much you are spending – you don’t need to track your spending forever, but you need to be sure you have a sense of where your money is going.

Optimize

Once you have your day to day financial life simplified, you can focus on optimizing to make the most of your resources:

Think about which financial goals are most important to you and your family – and revisit this often, things change!
Decide if you are you saving enough to reach your goals.
Invest appropriately for each goal’s time horizon.
Be smart about taxes – not just filing your tax return and claiming the right deductions or credits. But investing and saving with future taxes in mind. Consider which types of accounts you should be contributing to based on your current and future income levels and the time horizon for each of your goals.

Protect

If you’re taking the steps above to optimize your finances, you also need to make sure you’re protecting the wealth that you’re building:

Think about concentration risk – do you have a large amount of your savings in a single company’s stock? Equity compensation and company stock can be a great way to build wealth, but lacking sufficient diversification can be a quick way to lose a large portion of that wealth.
Make sure you’re properly insured. Everyone knows it’s important to have auto and homeowner’s insurance, but do you have life and long-term disability insurance to protect your loved ones if you’re no longer able to provide for them?

Almost everyone needs to have an estate plan in place. Read this to learn more, and then get started on getting it done.

Focusing on these three areas can help you to make significant progress in your financial life. And if you need help thinking through any of these, please reach out to us.

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Changes to Massachusetts Tax Laws

Joe Calvetti — Fri, 06 Oct 2023 00:00:00 +0000

The Massachusetts state legislature recently passed a significant tax reform bill that will impact a large number of people who pay taxes in Massachusetts.

Here are some of the highlights that may have an impact on your 2023 tax return:

Child and Dependent Credit

The credit for those with children under age 12, disabled dependents, or other dependents over age 65 will increase from $180 per dependent to $330 in 2023. For 2024 and future years, the credit will increase to $440. The cap of 2 dependents has also been eliminated.

Short-Term Capital Gains

The tax rate on short-term capital gains – meaning realized gains from selling investments that were held for one year or less – has been reduced from 12% to 8.5%.

Estate Tax

The new rules provide for an estate tax credit of up to $99,600, eliminating any taxes on estates valued under $2 million. This is a big increase over the previous threshold of $1 million, and the legislation also removes the cliff effect that had existed in the past. This means that only the value over $2 million will be taxed, whereas previously an estate valued over $1 million meant the entire estate was subject to tax.

Rental Deduction

50% of rent paid is deductible on your Massachusetts tax return. Previously this deduction was capped at $3,000, and as part of the new legislation, the maximum deduction has been increased to $4,000. If you pay more than $6,000 in rent for the year this means you will see a reduction in your tax bill as a result of this change.

Septic System Tax Credit

This credit, which benefits those who have incurred costs associated with repairing or replacing a failed septic system has increased from a maximum of $6,000 to a maximum of $18,000. 60% of costs up to $30,000 are eligible for the credit, and you can claim up to $4,000 in any single year (up from $1,500 per year previously).

Commuter Benefits

The Massachusetts commuter deduction now includes costs such as public transit fares, regional transit fares, bicycle expenses, and ferry passes.

Senior Circuit Breaker Tax Credit

This credit, which benefits those over 65 who have rental or real estate tax costs and meet certain income requirements, has been increased from $1,200 to $2,400.

If you have questions about how these changes will impact your personal tax situation, reach out to us!

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Equity Compensation 101 (Part 2) – ISOs and ESPPs

Joe Calvetti — Fri, 15 Sep 2023 00:00:00 +0000

In part 1 of this series, we discussed RSUs and non-qualified stock options. In this article, we’ll look at incentive stock options and employee stock purchase plans, both of which tend to be more complex when it comes to the tax implications and planning considerations.

Incentive Stock Options (ISOs)

How they work

Incentive stock options work very much like NQSOs – they come with a vesting period, exercise price, and expiration date.

There are some limits on the value of incentive stock options that can be granted each year, but the real difference between ISOs and NQSOs comes in how they are taxed.

How they are taxed

ISOs are not taxed when you exercise the options, but instead are taxed when you sell the shares.

This means that there is no tax withholding when you exercise these options. However, depending on the size of the spread (the difference in the market value of the shares when you exercise and your strike price) you may have to pay alternative minimum tax in the year that you exercise the shares.

Once you sell the shares, the tax rate that you pay on any gains (the difference between the strike price and the price you sell the shares for) depends on how much time has passed since you were granted the options and since the date you exercised them.

If you sell the shares more than 2 years after the grand date and 1 year after the date you exercised the options, any difference between the strike price and the price you sell the shares for is treated as a long term capital gain.

If you don’t meet the 2 years from grant date and 1 year holding period criteria, then the difference between the strike price and the fair market value of the shares on the date that you exercised the options is taxed as ordinary income. Any additional increase in the value of the shares after the date you exercised is considered a short term capital gain (typically taxed at the same rate as ordinary income, but can be offset by capital losses, if you have any).

Planning considerations

ISOs offer what can be significant tax benefits when you exercise and hold the options. However, this strategy comes with significant risk.

The value of the shares you receive after exercising is not guaranteed to increase or even stay flat. So you have to weigh the benefits of a lower tax rate when you eventually sell against the risk that the shares will lose value and wipe out any gains you initially had.

Your personal tax situation plays a big role in making this decision – for some people the difference in ordinary income tax rates and capital gains tax rates can be large. And for others that difference may not be as big.

You should also consider how important the money is to your long-term financial plan. Can you risk losing some of the value, or are these funds a critical part of your plan that you can’t afford to lose?

If you work for a private company, the potential tax benefits that come with ISOs provide some incentive to exercise options sooner rather than later if you expect the company to grow. However, as with NQSOs, you have to weigh the risk that you won’t be able to realize any gains if your company does not go public or provide another opportunity to sell your shares.

Employee Stock Purchase Plans (ESPPs)

How they work

Employee stock purchase plans allow you to buy shares of your company’s stock at up to a 15% discount.

Your employer will define an offering period of typically one to two years, and within that offering period, there will be several purchase periods. So for example, there may be a one year offering period with two 6 month purchase periods.

Each purchase period, you decide how much to have withheld from your paycheck and set aside to buy your company’s stock. There may be limits set by your company on the percentage of salary you can have withheld, and there is a $25,000 annual limit which is set by the IRS.

At the end of the purchase period, your paycheck withholdings are used to purchase shares of your company’s stock. The 15% discount is applied to the current market value of your company’s stock, or (if the plan has a lookback feature) the lower of the price at the beginning of the offering period or the current market value.

Once the shares are purchased, you have access to either sell the shares or hold on to them.

How they are taxed

Shares purchased through an ESPP are not taxed until sold.

If you sell the shares within two years of the beginning of the offering period or within one year of acquiring the shares, you pay ordinary income taxes on the discount (the difference between the market value of the shares on the date they were purchased and the price you actually paid) and short term capital gains on the change in value between when you acquired the shares and when you sold them.

When selling the shares after meeting both the two years since the beginning of the offering period and one year since acquiring the shares criteria, you still pay ordinary income tax on a portion of the gain, but the ordinary income tax is potentially calculated in a more beneficial way.

This video walks through examples of the different tax outcomes in each of these scenarios.

Planning considerations

Once you decide to participate in your employer’s ESPP, you then need to start thinking about whether you want to sell the shares immediately after purchasing or if you want to hold onto the shares and potentially realize the tax benefits of doing so.

As with other forms of equity compensation, you need to weigh the investment risk, or the risk that the shares lose value between when you purchase them and when you ultimately sell against the tax benefits of holding the shares.

Final thoughts on Equity Compensation

Equity compensation can be a significant benefit, but you need to make sure you don’t end up holding shares of your company’s stock without a plan in place.

Be careful not to take more investment risk than you can afford, think about diversifying your human and financial capital, and be sure you understand the tax implications.
But most importantly, have a plan for how you’re going to use your stock compensation to make progress toward your family’s unique goals. And if you need help thinking through how to go about this, reach out to us!

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Equity Compensation 101 (Part 1) – RSUs and NQSOs

Joe Calvetti — Fri, 11 Aug 2023 00:00:00 +0000

Equity compensation is a common way for companies to award and retain employees, and it can be a great benefit if you know how to take advantage of it.

But sometimes it feels like you need an advanced finance degree to figure out how this stuff actually works.

In this two part series, we’ll talk through the most common types of equity compensation, how they are taxed, and some things you should consider when determining how your equity awards fit into your financial plan.

Restricted Stock Units (RSUs)

How they work

RSUs represent a promise to deliver company stock at a certain date. This date is called the vesting date, and it’s common for these awards to vest over 3-4 years on an annual, quarterly, or sometimes even monthly basis.

Once you reach the vesting date, you receive a portion of the shares that were granted to you (for example, you’d receive 25% of the shares granted if your RSUs vest annually over 4 years).

It’s important to understand that you receive a fixed number of shares at the vesting date – the value of those shares fluctuate as the company’s stock price moves, and this may have changed quite a bit (which could be good or bad!) from the time they were originally granted.

When the shares are vested, you are in complete control of them – you can decide whether you want to hang on to the shares or sell them and move the cash to a bank account, or invest it according to your goals.

How they are taxed

RSUs are taxed when you take control of the shares on the vesting date. You pay ordinary income tax – similar to how you are taxed on your salary – on the value of the shares as of the vesting date.

Your company will likely withhold taxes either by holding back a certain number of shares (so instead of receiving the full 100 shares that vested, you only receive 70, for example) or by immediately selling a number of shares on your behalf (typically called “selling to cover”). Both the income and tax withholdings will appear on your W-2 at the end of the year.

Most companies default to withholding federal taxes on RSUs – and most other equity compensation and bonuses for that matter – at 22%. This means that tax withholdings for RSUs are not based on your W-4 and could put you in a position of having a big refund or big tax bill when you file your return. So if you don’t expect to be in or near the 22% tax bracket for the year, consider how these awards will impact your taxes.

Once the shares vest, any change in the value is considered a capital gain or loss. Short term capital gains (which are gains on shares that you’ve held for a year or less) are taxed at ordinary income rates, while long term capital gains are taxed at more advantageous capital gains rates.

Planning considerations

In many ways, RSUs are similar to receiving a cash bonus. The dollar value of the shares is taxed when they vest, and you have complete control over what you do with the shares at that time.

The one difference of course is that you own shares of your company stock and not cash. So once the shares are vested, you need to decide whether to sell them and convert them to cash or hold onto the shares.

In making this decision, it can be helpful to ask yourself this question: If you received a cash bonus in the same amount as the shares that just vested, would you use that cash to buy shares of your company’s stock? Or would you save or invest it in another way based on your personal goals?

For many people, the answer is no, you wouldn’t necessarily buy your company stock if you had some extra cash lying around. However, it can be reasonable to hold your company stock if it makes up a small portion of your overall savings. Just be sure you understand the potential risks involved and the importance of diversifying your human and financial capital.

Non-Qualified Stock Options (NQSOs)

How they work

Stock options differ from RSUs in that they give you the right to purchase shares of the company’s stock once the options are vested. Meaning you need to pay for the shares before you take ownership.

The potential benefit of this type of equity compensation is that the price you pay for the shares, known as the strike price or exercise price, is set when the stock options are granted to you.

So if the company’s stock price increases between when the options are granted and when they vest, you could end up buying the shares at a discount. But the opposite is also true, so if the stock price decreases in that time, the options are worthless since you could buy the shares at a lower price in the open market.

However, options typically don’t expire on the day they vest, so even if the stock price is below your strike price when the shares vest, you have until the expiration date to be able to exercise the options if the price increases.

Once you exercise the options by paying the strike price and taking ownership of the shares, you are free to sell the shares.

How they are taxed

Nonqualified stock options are taxed when you exercise the options. You pay ordinary income taxes on the difference between the exercise price and the value of the shares on the day that you exercise the options.

For example, let’s say your strike price is $10, and the value of the shares is $15 when you exercise options to buy 1,000 shares. You would then pay taxes on $5,000 of income ($5 difference between the stock price and the exercise price multiplied by 1,000 shares).

Your employer will withhold taxes when options are exercised, and at the end of the year, the income and tax withholding will appear on your W-2. The method of tax withholding can vary – you may be required to pay your employer the amount of withholding due, or your employer may reduce the number of shares you receive.

Similar to RSUs, most companies will default to withholding 22% for federal tax purposes.

After options are exercised, any change in value is considered a capital gain or loss, and the tax rate depends on how long you hold the shares.

Planning considerations

In general, when the stock price is greater than your exercise price, it makes sense to exercise your nonqualified stock options if you plan to sell them immediately and realize the gain.

Alternatively, you could hold on to the shares, and you may see some tax benefit since any additional increase in the share price after you exercise is considered a capital gain.

But, you have to balance that potential benefit with the risk that the stock price decreases below your exercise price.

For this reason, nonqualified stock options come with many of the same planning considerations as RSUs. If you wouldn’t have bought shares of your company’s stock if not for the options, you likely want to consider selling the shares after exercise and saving or investing the money based on your unique goals.

If you work at a private company, the decision around when to exercise your options becomes a bit more complicated. Even if the value of the shares is greater than your strike price, you may not be able to sell the shares to realize that value when the shares are not publicly traded.

In this case you have to balance the tax savings of exercising (because any increase in value after exercise is treated as a capital gain), with the uncertainty of whether your company will go public, be acquired, or provide you some other type of opportunity to sell the shares.

Part 2

In part 2 of this equity compensation 101 series, we’ll talk about incentive stock options (ISOs) and employee stock purchase plans (ESPPs).

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5 Ways to Take Advantage of a Low Income Year

Joe Calvetti — Fri, 21 Jul 2023 00:00:00 +0000

Most of the tax planning we do with clients revolves around trying to reduce taxable income and minimize the taxes being paid in a given year. However, there are some life events that might lead to you having a (comparatively) low income year – maybe one spouse has decided to take a break from the workforce to care for children, or you started a business, or you’re retiring.

The goal of tax planning is to minimize the taxes you pay over the course of your lifetime, and these lower income years provide an opportunity to take advantage of lower tax rates that you don’t want to give up. Here are 5 ways you can take advantage of being in a lower tax bracket.

1. Roth IRA or 401(k) Contributions

If you expect to be in a higher tax bracket when you withdraw money from your retirement accounts than you are today, then contributing to a Roth account is the way to go. These are after tax contributions, but the contributions and earnings come out tax free after age 59 1/2.

2. Exercise Stock Options

If you’ve been holding stock options – especially non-qualified stock options where you pay taxes on the difference between the stock price and the strike price when you exercise – a low income year is a great time to consider exercising your options.

3. Capital Gain Harvesting

If you hold investments in a brokerage account, you should consider realizing some of the gains in the account by selling and then repurchasing your investments. If you file a joint tax return and your taxable income is under $89,250 (for 2023), you pay 0% taxes on capital gains. Even if your income is higher, you may still be able to take advantage of lower rates as opposed to selling investments in a higher income year.

4. Roth Conversions

If you have savings in a traditional IRA – maybe you’ve rolled over a balance from a previous employer’s 401(k) – you can convert this money to a Roth IRA at any time. You’ll pay tax on the money when you convert it, which makes this a great strategy for a lower income year.

5. Delay Business Expenses

If you’re a business owner and you have certain expenses that are flexible – think purchasing new equipment or timing of advertising campaigns – consider pushing those expenses into a higher income year. The higher the income tax bracket that you’re in, the more the deduction is worth.

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The Electric Vehicles Tax Credit

Joe Calvetti — Fri, 30 Jun 2023 00:00:00 +0000

The Inflation Reduction Act brought with it several changes to the tax code that promote clean energy. One of these is a new clean vehicle tax credit which is available beginning in 2023 and running through 2032.

This article will discuss the details of the credit including how to determine if you qualify, which vehicles qualify, and the different requirements when purchasing new and used vehicles.

Which Electric Vehicles Qualify

The new clean vehicle credit is limited to qualifying fully electric vehicles, fuel cell vehicles, and plug-in hybrid electric vehicles.

The amount of the credit and the specific vehicles that qualify will depend on whether you’re purchasing a new or used vehicle and whether the vehicle will be used for business purposes.

New Electric Vehicles

The maximum credit for new electric vehicles is $7,500, which is not refundable, meaning it is limited to the amount of your tax liability. There are several requirements that new electric vehicles and the purchaser must meet to qualify for the credit:

MSRP

The manufacturer suggested retail price (MSRP) for the vehicle cannot exceed the following:

$80,000 for vans, SUVs, and pickup trucks; or
$55,000 for all other vehicles.

The IRS uses the EPA fuel economy labeling standards (typically listed on the vehicle’s window sticker) to determine the category into which each vehicle falls.

Remember that MSRP isn’t necessarily the price that you pay for the vehicle.

Income

To qualify for the credit, your modified adjusted gross income in the year of purchase or the year prior cannot exceed the following:

$300,000 if married filing jointly;
$225,000 if filing as head of household; or
$150,000 if single or married filing separately.

For most taxpayers, modified adjusted gross income will be the same as your adjusted gross income on the first page of your tax return.

Assembly

The vehicle must undergo final assembly in North America. If the vehicle is not put together at a plant in the United States, Mexico, or Canada, it will not qualify for the credit.

Critical Mineral and Battery Components

For vehicles delivered on or after April 18, 2023, the maximum amount of the credit will be determined by critical mineral and battery component sourcing requirements.

If the vehicle meets both requirements, it will be eligible for the full $7,500 credit. If only one requirement is met, the maximum credit is reduced to $3,750, and the vehicle is ineligible for any credit if neither requirement is met.

Vehicles delivered before April 18, 2023 do not need to meet these sourcing requirements and are eligible for a maximum credit between $3,751 and $7,500 depending on the vehicle’s battery capacity.

This website provides details on which vehicles are eligible for the credits and what the maximum credit is based on these sourcing and battery capacity requirements.

Used Electric Vehicles

The maximum credit for purchasing a used electric vehicle is the lesser of $4,000 or 30 percent of the purchase price. Similar to the credit for new vehicles, it is not refundable.

This credit can be claimed only once every three years, and there are fewer, but more restrictive requirements that must be met in the case of purchasing a used vehicle:

Model Year and Purchase Price

The used vehicle must have a model year at least two years prior to the year in which the purchase is made. For example, a vehicle purchased in 2023 must have a model year of 2021 or earlier. The vehicle must also be sold by a licensed dealer, and the purchase price cannot exceed $25,000.

Income

To qualify for the credit, your modified adjusted gross income cannot exceed the following:

$150,000 if married filing jointly;
$112,500 if filing as head of household; or
$75,000 if single or married filing separately.

Similar to the new vehicle credit, you can use your modified adjusted gross income from the year you take delivery of the vehicle or the year prior, whichever is less.

Other Requirements

For used vehicles, there are no requirements when it comes to assembly, critical minerals, or battery components.

The IRS has provided this full list of used vehicles that qualify for the credit.

A Workaround for High Income Earners

If your income is too high to claim the clean vehicle credit by purchasing a car, there is a way for you to still take advantage of the tax breaks through leasing.

Leasing companies can qualify for a $7,500 commercial clean vehicle credit, which can be passed along to consumers through reduced leasing costs.

The commercial clean vehicle credit is also less restrictive than the new clean vehicle credit. There are no rules around price, critical minerals, or battery components. So, more vehicles will qualify for tax breaks through leasing as opposed to buying.

Vehicles Purchased for Business Use

In addition to leasing companies, other businesses and tax-exempt organizations can also qualify for the commercial clean vehicle credit. The maximum credit is $7,500 for vehicles with gross vehicle weight ratings of under 14,000 pounds, and $40,000 for all other vehicles.

This credit is calculated as the lesser of 15% (or 30% if the vehicle is fully electric) of the basis of the vehicle, which in many cases is the purchase price if used for only business purposes, or the incremental cost of the vehicle over a similar non-electric model. For 2023, the IRS has said it will accept $7,500 as the incremental cost of almost all electric vehicles to simplify this process.

For vehicles to qualify for this credit, they must have final assembly in the United States, but there are no critical mineral or battery component sourcing requirements.

Practical Considerations

If you plan to claim one of the clean vehicle credits discussed here, you should ensure the seller creates a seller’s report and provides a copy to both you and the IRS. The credit will only be allowed on your tax return if you are listed as the owner on the seller’s report.

To claim the new or used vehicle credit, you will file Form 8936 with your tax return, and to claim the commercial clean vehicle credit, you or your business will file Form 8936-A.

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