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Table of Contents
- What is the electric vehicle tax credit?
- Which cars qualify for a federal EV tax credit?
- How the 2023-2024 EV tax credit works
- 2024 EV tax credit
- How the electric vehicle tax credit is calculated
- How to claim the federal EV tax credit
- What information do you need from a seller to claim the tax credit?
- EV rebates and incentives
- Leasing and the EV tax credit
- A final note
As of 2023, people who buy new electric vehicles may be eligible for a tax credit as high as $7,500, and used electric car buyers may qualify for up to $4,000 in tax breaks. The nonrefundable credit can be claimed on tax returns filed in 2024.
In 2024, the IRS plans to expand access to the tax benefit by allowing consumers to choose between claiming a nonrefundable credit on their tax returns to lower their tax bill or transferring the credit to the dealer to lower the price of the car at the point of sale.
This new proposal would make it easier for all eligible consumers — not just those with a high tax liability — to take advantage of credit. For those who transfer the credit, it would also do away with having to wait until the following year to claim the benefit on their tax returns.
Here's what you need to know about the federal tax incentives for electric vehicles, a summary of changes courtesy of the legislation, and an overview of which cars may qualify for the new credit according to the IRS.
What is the electric vehicle tax credit?
The electric vehicle tax credit, or the EV credit, is a nonrefundable tax credit offered to taxpayers who purchase qualifying electric vehicles or plug-in hybrid vehicles. Nonrefundable tax credits lower your tax liability by the corresponding credit amount. This means the credit can make a sizable dent in your tax bill, but you won’t see any overage back in the form of a tax refund.
The tax benefit, which was recently modified by the Inflation Reduction Act for years 2023 through 2032, allows for a maximum credit of $7,500 for new EVs, and up to $4,000, limited to 30% of the sale price, for used EVs. Taxpayers can only claim one credit per vehicle.
In 2024, the IRS is expected to allow consumers to transfer the credit to the dealer to lower the price of the car by the credit amount, which will effectively allow all eligible consumers to benefit from the tax break.
» Curious about other tax incentives for going green? How the solar tax credit works
The Inflation Reduction Act officially renamed the credit the “clean vehicle credit.”
Which cars qualify for a federal EV tax credit?
As of Nov. 1, 2023, the following fully electric and plug-in hybrid vehicles are eligible for either a full or partial tax credit if delivered on or after April 18, 2023, per FuelEconomy.org.
The IRS urges taxpayers to use the tool on the FuelEconomy.gov website for the most up-to-date information on eligible models. You can filter by purchase scenario, model year, and vehicle type and make to determine which car is eligible based on its date of delivery.
Car Make and Model
Tax Credit Amount
X5 xDrive50e (2024)
Bolt (2022-2023) Bolt EUV (2022-2023)
Pacifica PHEV (2022-2024)
F-150 Lightning (standard and extended range battery) (2022-2023)
Mustang Mach-E (standard and extended range battery) (2022-2023)
Grand Cherokee PHEV 4xe (2022-2024)
Wrangler PHEV 4xe (2022-2024)
Aviator Grand Touring (2022-2023)
Corsair Grand Touring (2022-2023)
R1S (2022-2023) R1T (2022-2023)
Model 3 Standard Range RWD (2022–2023)
Model 3 Performance (2022–2023)
Model Y Performance (2022–2023) Model Y AWD (2022–2023) Model Y Long Range AWD (2022–2023)
Model 3 Long Range AWD (2023)
ID.4 Pro ID.4 Pro S ID.4 Pro S Plus
ID.4 AWD Pro ID.4 AWD Pro S ID.4 AWD Pro S Plus
ID.4 S ID.4 Standard
How the 2023-2024 EV tax credit works
To qualify for the new EV tax credit, your income must fall beneath certain thresholds, and the vehicle you intend to purchase must also meet several IRS specifications, including price caps and manufacturing guidelines.
The changes to the clean vehicle tax credit listed below went into effect in January 2023, with the exception of the critical mineral and battery rules, which began to apply on April 18, 2023.
Used EVs now eligible
One of the most contentious issues with the older version of the EV tax credit was its exclusion of used cars. The IRA remedies this. Beginning in 2023, qualifying used EV purchases can fetch taxpayers a credit of up to $4,000, limited to 30% of the car’s purchase price.
Some other qualifications:
Used car must be plug-in electric or fuel cell with at least 7 kilowatt hours of battery capacity.
Only qualifies for the first transfer of a vehicle.
Purchase price of car must be $25,000 or less.
Car model must be at least two years old.
Vehicle must weigh less than 14,000 pounds.
Credit can only be claimed once every three years.
As of 2023, vans, SUVs and pickup trucks must have an MSRP, or manufacturer's suggested retail price, of $80,000 or under to qualify for the credit. Other vehicles, such as sedans and passenger cars, are capped at $55,000. For used vehicles, the price cap drops to $25,000.
For new vehicles, the MSRP, as defined by the IRS, is the base retail price provided by the manufacturer plus the retail price of each accessory or optional piece of equipment that is physically present on the car at the time of delivery to the dealer. For purposes of claiming the credit, MSRP does not include taxes and other fees added on by the dealer.
Along with price caps on cars, the new credit also sets limits on the modified adjusted gross income that taxpayers can make in order to qualify.
Per the IRS, you can use your MAGI from either the year the car is delivered or the year before delivery. This means if your income exceeded the threshold one year, but was below the cap during the other year, you may still be able to snag a credit.
Modified adjusted gross income
Head of household
Married, filing jointly
Married, filing separately
Modified adjusted gross income
Head of household
Married, filing jointly
Married, filing separately
If your income precludes you from qualifying, there are also several tax strategies you can consider to lower your income throughout the year, such as maxing out your 401(k) or contributing to an HSA or FSA.
Final assembly requirements
To be eligible for the new credit, vehicles must have had final assembly in North America. You can reference the National Highway Traffic Safety Administration’s VIN, or vehicle identification number, database to check out a car’s final assembly details.
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2024 EV tax credit
Beginning Jan. 1, 2024, taxpayers may have the option to transfer the credit to the dealer at the point of sale. This means that eligible dealerships would be able to either lower the cost of the vehicle by the corresponding credit amount or provide the consumer with a cash equivalent.
To participate in the program, dealers would need to register with Energy Credits Online. The online system will allow them to verify the vehicle’s eligibility, though consumers will ultimately remain responsible for ensuring they meet the income requirement for the credit. If a taxpayer takes the rebate but is not eligible for it, they will be required to pay the IRS back when they file their tax return.
The proposal is currently undergoing a public commentary period. See the IRS release guidance for more information.
How the electric vehicle tax credit is calculated
The new tax credit, worth up to $7,500, is made up of battery and sourcing requirements, each adding up to half of the credit. If the car meets both requirements, it is eligible for the full credit. If it meets only one requirement, it may be eligible for a partial credit of $3,750.
Per the IRS, the requirements below apply to vehicles that are delivered (i.e., “placed in service”) to the taxpayer on and after April 18, 2023. This rule also applies to cars that were purchased earlier in the year but were not delivered until April 18 or later.
EVs delivered prior to April 18, 2023
If your qualifying EV was purchased and delivered before April 18, 2023, the critical minerals and battery sourcing requirements do not apply. Instead, the credit amount is calculated as $2,500 if the battery has at least a 7-kilowatt-hour capacity, plus up to $5,000 for additional kilowatt hours above the base requirement of 7 kilowatt hours.
How to claim the federal EV tax credit
To claim the credit, taxpayers can file Form 8936 when they file their federal income taxes. The credit is nonrefundable, which means it can lower or eliminate taxes owed but will not result in a refund. You also won't be able to carry over any excess amount to offset future taxes.
Some fine print: According to the agency, you generally can only claim the clean vehicle tax credit for the tax year the vehicle was delivered to you, not necessarily the year it was purchased. This means, for example, that if you bought a qualifying EV in 2023 but won't receive it until 2024, you must claim the credit on your 2024 tax return (filed in 2025). If you purchase a qualifying vehicle in 2023 and it is delivered during the same calendar year, you can claim the tax credit on your 2023 tax return (filed in 2024).
In 2024, taxpayers may also be able to transfer the credit to the dealership for a direct discount on the car rather than waiting until the next calendar year to claim the credit on their returns. The IRS is expected to issue further guidance on this credit flexibility in the coming months.
What information do you need from a seller to claim the tax credit?
Before you leave a dealership with a new EV, make sure you have certain documents that you’ll need to claim the credit on your taxes. Sellers must provide taxpayers with a report containing certain information about the vehicle — and this report should be furnished to the taxpayer by the date of the vehicle’s purchase. Make sure it includes the following:
Name and taxpayer identification number (TIN) of the seller.
Name and TIN of the taxpayer.
Date of sale and sales price.
Verification of the maximum tax credit the vehicle is eligible for.
The clean vehicle’s VIN, or vehicle identification number.
The clean vehicle’s battery capacity.
Verification that the taxpayer is the original user of the vehicle.
A statement of declaration from the seller under penalty of perjury.
EV rebates and incentives
With all the focus on credits, it’s important to know about additional incentives on the state and local levels. California’s Clean Air Vehicle program, for example, grants carpool lane access to select electric vehicles. And New Yorkers might be eligible for a state-level rebate of up to $2,000 on top of the federal tax credit.
Make sure you’re aware of any restrictions that come with applying for multiple incentives, though. Some states may not allow you to “double-dip” or claim a state-level rebate on top of a federal one.
» Interested in building a more ethical portfolio? Consider ESG investing
Leasing and the EV tax credit
Though individual consumers can’t claim the clean vehicle tax credit when leasing an EV, they might still see some trickle-down savings passed down from the dealer.
Leased cars are considered commercial vehicles that are owned by the businesses — such as dealerships and leasing agencies — that purchase them. This effectively allows the business to qualify for another type of tax credit called the commercial vehicle tax credit. The commercial credit is far less restrictive than the clean vehicle credit currently available to individual taxpayers. It allows businesses to claim tax breaks for a wider range of eligible electric vehicles, including ones that were not manufactured in the U.S.
Even though the dealership gets the tax credit for purchasing the car, the potential benefit to individual consumers here is that the dealer can, in theory, then pass down the savings by lowering the leasing cost by the credit amount.
A word of caution for potential lessees, though: Just because the dealership could pass those savings onto you, doesn’t mean it will. Dealers aren’t required to give customers a discount on their leases, so it may require some negotiating on your end.
Assessing the transparency of any deal that claims the savings are being passed down may also require a good bit of research and shopping around to ensure you’re getting the best deal. Plus there are other factors about leasing that you may want to take into account.
A final note
The clean vehicle credit expansion is exciting news for taxpayers looking to go green, but it still remains fairly complicated and nuanced — especially given the murk surrounding the new sourcing requirements. If you’re confused about your eligibility or want guidance for your personal situation, consider consulting a qualified tax professional, such as a CPA or a tax preparer before you sign on the dotted line.
» MORE: How to find a CPA near you