Beatrice Lang
Electric vehicles (EVs) are becoming increasingly popular, and with them, the question of tax credits. The federal EV tax credit is a non-refundable credit of up to $7,500 offered to taxpayers who purchase qualifying new or used electric vehicles. The credit amount varies depending on the vehicle's sourcing, assembly, and price. To qualify for the tax credit, the vehicle must be primarily used in the US and meet certain price caps and manufacturing guidelines. Additionally, the taxpayer's income must fall below certain thresholds, with limits based on modified adjusted gross income (MAGI). The EV tax credit is available until December 2032, and buyers can choose to transfer the credit to a dealer for a discount on the vehicle.
| Characteristics | Values |
|---|---|
| Maximum federal tax credit | $7,500 |
| Tax credit for used EVs | 30% of the vehicle's value or $4,000, whichever is less |
| Income limits | Based on modified adjusted gross income (MAGI) |
| Price limit for used vehicles | $25,000 |
| Vehicle weight | Less than 14,000 pounds |
| Vehicle assembly | Must be primarily in North America for the full credit |
| Critical battery minerals requirement | 60% |
| MSRP | $80,000 for vans, SUVs, and pickup trucks |
| Credit expiration | December 2032 |
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What You'll Learn
Income limits for new and used vehicles
The EV tax credit is a federal tax benefit for those who purchase qualifying new or used electric vehicles. The maximum federal tax credit is $7,500 for an eligible electric vehicle. This credit is available to individuals and businesses, and the vehicle must be used primarily in the US. The credit is up to $7,500 for new vehicles and up to $4,000 or 30% of the sales price (whichever is less) for used vehicles.
The income limits for new and used vehicles are based on modified adjusted gross income (MAGI). MAGI is roughly the adjusted gross income with certain allowable deductions added back in for the current or prior tax year. The specific income limits depend on the tax filing status, and they are different for married couples filing jointly, single filers, and surviving spouses. For example, for married couples filing jointly, the modified AGI must not exceed $300,000.
To qualify for the full $7,500 federal EV tax credit, the EV must be brand new and assembled in North America. There are also requirements for the vehicle's price, weight, and battery pack composition and production. The vehicle must also be purchased from a manufacturer that hasn't sold more than 200,000 EVs in the US.
For used vehicles, there is a price limit of $25,000, and the vehicle must be at least two model years older than the calendar year in which it was purchased. The used EV tax credit can only be claimed once in the vehicle's lifetime, and subsequent owners are not eligible.
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IRS specifications for vehicles
The electric vehicle (EV) tax credit is a federal tax benefit for those who purchase qualifying new or used electric vehicles. The maximum federal tax credit is $7,500 for an eligible electric vehicle. This credit is available to individuals and their businesses. To qualify for the full federal electric vehicle tax credit, the EV purchased must be brand new and assembled in North America.
The EV tax credit is a nonrefundable tax credit offered to taxpayers who purchase qualifying electric vehicles or plug-in hybrid vehicles. The vehicle must meet several IRS specifications, including price caps and manufacturing guidelines. The purchase price of the car must be $25,000 or less, and the car model must be at least two years old. The vehicle must weigh less than 14,000 pounds and be plug-in electric or fuel cell with at least 7 kilowatt-hours of battery capacity. The vehicle must be used primarily in the US, and the taxpayer's modified adjusted gross income (AGI) may not exceed $300,000 for married couples filing jointly or a surviving spouse.
As of 2024, taxpayers can choose to transfer the tax credit to an eligible dealership instead of claiming it on their tax returns the following year. This allows the dealer to lower the cost of the vehicle by the corresponding credit amount for an immediate point-of-sale discount. The tax credit for used EVs is calculated based on either 30% of the vehicle's value or $4,000, whichever is less. There are no assembly requirements or battery component percentages for used EVs and PHEVs. The price limit for used vehicles is $25,000, and the vehicle must be at least two model years older than the calendar year in which it was purchased.
The IRS also provides specifications for business use of a car. If a car is used only for business purposes, the entire cost of ownership and operation may be deducted (subject to limits). However, if the car is used for both business and personal purposes, only the cost of its business use may be deducted. The IRS provides two methods for calculating this amount: the standard mileage rate method and the actual expense method.
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State-level rebates
California
California has implemented several incentive programs to promote the adoption of electric vehicles. The state's Clean Air Vehicle program grants carpool lane access to select electric vehicles. Additionally, the Mojave Desert Old Car Buy Back and Scrap Program offers $1,000 for qualified operating and registered vehicles that are 20 or more years old. The Monterey Bay Air Resources District provides incentives for new and used alternative fuel vehicles, with rebates ranging from $500 to $2,500. Furthermore, the LADWP Used EV Rebate Program offers rebates of up to $1,500 for qualifying used electric vehicles purchased within 12 months of application submission.
New York
New Yorkers may be eligible for a state-level rebate of up to $2,000, which can be claimed in addition to the federal tax credit.
Illinois
The Illinois EV Rebate Program offers up to $4,000 for the purchase of a new or used all-electric passenger vehicle. This program gives priority to applicants who certify as low-income. Additionally, ComEd provides rebates starting at $5,000 for the purchase or lease of a new or pre-owned EV for Business and Public sector customers.
Connecticut
The Eversource EV Charging Program offers a $500 rebate to eligible customers for installing necessary wiring, along with a $100 reward for enrolling in managed charging. Norwich Public Utilities provides residential customers with rebates of up to $1,000 for the purchase of a Level 2 EVSE. The UI Smart Solutions EV Charging Program offers rebates of up to $1,000 to reduce the cost of installing qualified Smart Chargers and wiring upgrades, along with ongoing incentives of up to $300 to promote consistent participation.
Colorado
The San Isabel Electric Association offers a $500 rebate for customers purchasing an electric vehicle. Black Hills Energy provides rebates of up to $5,500 for new or used electric vehicles and an additional $500 rebate per port for the purchase and installation of Level 2 EV chargers.
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Tax credit for leased vehicles
The electric vehicle (EV) tax credit is a federal tax benefit for those who purchase or lease qualifying new or used electric vehicles. The tax credit is offered to taxpayers who purchase or lease qualifying electric vehicles or plug-in hybrid vehicles. The credit is available to individuals and businesses, and the amount varies depending on the vehicle's specifications and the taxpayer's income.
For a vehicle to qualify for the tax credit, it must meet certain specifications, including price caps, manufacturing guidelines, and battery component requirements. The vehicle's manufacturer suggested retail price (MSRP) must also be below a certain threshold, which varies depending on the type of vehicle. For example, vans, sport utility vehicles, and pickup trucks have an MSRP limit of $80,000. The vehicle must also be used primarily in the United States and cannot be for resale.
In addition to the vehicle qualifications, the taxpayer's income must also fall below certain thresholds to qualify for the tax credit. The income limits are based on modified adjusted gross income (MAGI) and vary depending on the taxpayer's filing status. For example, for a married couple filing jointly or a surviving spouse, the MAGI must be $300,000 or lower.
The tax credit for leased vehicles works slightly differently than for purchased vehicles. The amount of the lease credit is typically deducted from the price of the vehicle at the time of signing, reducing the customer's monthly lease payments. However, it's important to note that not all leasing companies pass these savings along, and consumers may need to negotiate to include the tax credit in their lease agreement. Additionally, the federal tax credit does not apply to leased vehicles, but some state and local incentives may be available.
The tax credit for used EVs is calculated based on either 30% of the vehicle's value or $4,000, whichever is less. The vehicle must be purchased from a dealer, and the dealer must report the required information during the sale. The vehicle must also meet certain specifications, including a weight rating of up to 14,000 pounds and a battery capacity of at least five to seven kilowatt-hours (kWh).
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Tax credit for vehicles purchased before 2023
The tax credit for vehicles purchased before 2023 is available to individuals and businesses that buy a new, qualified plug-in electric vehicle (EV) or fuel cell electric vehicle. The maximum credit is $7,500 and is non-refundable, meaning you can't get back more on the credit than you owe in taxes and can't apply any excess credit to future tax years.
To qualify for the full $7,500 federal EV tax credit, the EV purchased must be brand-new and assembled in North America. The vehicle must also meet several IRS specifications, including price caps and manufacturing guidelines. The manufacturer should also not have sold more than 200,000 EVs in the US.
The tax credit for used EVs is calculated based on either 30% of the vehicle's value or $4,000, whichever is less. The rules for used EVs went into effect on January 1, 2023, and include the following requirements:
- The price limit for used vehicles is $25,000.
- The vehicle must be at least two model years older than the calendar year in which it was purchased.
- The used EV tax credit applies only once in the vehicle's lifetime.
The income limits for the tax credit are determined by modified adjusted gross income (MAGI). The limits by filing status are as follows:
- $300,000 for married couples filing jointly or a surviving spouse.
- $150,000 for married couples filing separately.
- $225,000 for all other taxpayers.
To claim the credit, you can file Form 8936 when you file your federal income taxes.
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Frequently asked questions
$7,500.
$300,000 for married couples filing jointly or a surviving spouse, $225,000 for a head of household, and $150,000 for individual filers.
The tax credit for used electric vehicles is calculated based on either 30% of the vehicle's value or $4,000, whichever is less.
The vehicle must be new, have a manufacturer's suggested retail price (MSRP) of $80,000 for vans, SUVs, and pickup trucks, and $55,000 for sedans, hatchbacks, and wagons, weigh less than 14,000 pounds, and be assembled in North America.
To claim the electric vehicle tax credit, you need to file Form 8936 when filing your federal income tax return with the IRS.
