Beatrice Lang
Electric vehicles are eligible for the federal government's tax credit program, which can reduce what you owe the IRS by up to $7500 for a single tax year. The tax credit is available for both new and used electric vehicles, with the former receiving up to $7500 and the latter up to $4000. To claim the credit, you must file Form 8936 when you file your tax return for the year in which you take delivery of the vehicle. The credit is non-refundable, and any excess value cannot be claimed on future tax returns.
| Characteristics | Values |
|---|---|
| Tax credit amount | Up to $7,500 |
| Vehicle type | New, qualified plug-in electric vehicle or fuel cell electric vehicle |
| Vehicle price | MSRP can't exceed $80,000 for vans, SUVs, and pickup trucks; $55,000 for clean cars |
| Vehicle assembly | Must primarily be in North America for the full credit |
| Income | Modified AGI may not exceed $300,000 for married couples filing jointly or a surviving spouse |
| Timeframe | Purchased between January 1, 2023, and December 31, 2032 |
| Form | 8936 |
| Claim | Can be claimed immediately at the point of sale by transferring the credit to the dealership or when filing taxes |
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What You'll Learn
Claiming the credit at the point of sale
As of January 1, 2024, eligible consumers will have the option to transfer the value of the tax credit to dealers in exchange for an equivalent reduction in the vehicle's purchase price. This means that you can benefit from an immediate reduction in the price of the vehicle at the point of sale rather than waiting for a tax credit after filing taxes.
To be eligible for the credit, you must purchase a qualifying clean vehicle. The vehicle must be new, and the tax credit is up to $7,500 for such vehicles. Certain used/previously owned EVs can qualify for a tax credit of up to $4,000 or 30% of the sales price (whichever is less). The vehicle must be purchased before December 31, 2032, as this is when the IRA's clean-vehicle tax credits will expire.
The dealer must be registered and qualified to pass EV credit savings to consumers. The dealer will then transfer the value of the federal EV tax credit on eligible vehicles for eligible consumers (income limits apply). The value can be a cash refund or a discount on the total price of the electric vehicle. The dealer must also submit the tax credit information to the IRS to determine vehicle eligibility and credit amount. The IRS will send the dealer a confirmation, and the dealer should provide you with a copy of this.
You will still need to file the credit paperwork with your tax return. If you do not meet the requirements, you may have to repay the credit as income tax. You must file Form 8936, "Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles),” with your tax returns.
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Eligibility criteria for vehicles
The eligibility criteria for vehicles to qualify for the electric vehicle tax credit are as follows:
For new electric vehicles, the maximum tax credit is $7,500. To qualify for the full credit, the vehicle's final assembly must have occurred in North America. To get a $3,750 credit, a certain percentage of the car's critical battery minerals must be sourced from the U.S. or a country with a free-trade agreement with the U.S. Another $3,750 credit requires that a certain percentage of battery components be manufactured or assembled in the same roster of countries.
For used electric vehicles, the maximum tax credit is $4,000 or 30% of the sales price, whichever is less. The vehicle must have a model year at least two years earlier than the calendar year in which it is bought. For example, a vehicle purchased in 2024 would need a model year of 2022 or older. The vehicle must not have been previously transferred to a qualified buyer. It must be plug-in electric or fuel cell with at least 7 kilowatt-hours of battery capacity. The purchase price of the car must be $25,000 or less, and the vehicle must weigh less than 14,000 pounds.
In addition, price limits determine whether a vehicle is eligible for a tax credit. Vans, pickup trucks, and SUVs with a manufacturer's suggested retail price (MSRP) of more than $80,000 won't qualify for the credit. For clean cars to qualify for the EV tax credit, the MSRP can't be more than $55,000.
As of January 1, 2025, a vehicle is ineligible for a tax credit if any of the battery's components and critical battery materials were sourced from a "foreign entity of concern," including China, Iran, North Korea, and Russia.
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Income limits for individuals
The electric vehicle (EV) tax credit is a federal tax benefit for those who purchase or lease qualifying new or used electric vehicles. The credit is worth up to $7,500 for new vehicles and up to $4,000 for used vehicles. The credit is non-refundable, meaning it can only be applied to the tax owed in the year the vehicle was purchased or leased, and any excess value cannot be claimed in future tax returns.
To be eligible for the EV tax credit, your modified adjusted gross income (AGI) must not exceed $300,000 for married couples filing jointly or a surviving spouse. You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your modified AGI is below the threshold in one of the two years, you can claim the credit.
It is important to note that the EV tax credit has specific requirements and limitations. For example, the vehicle's manufacturer suggested retail price (MSRP) must not exceed $80,000 for vans, sport utility vehicles, and pickup trucks. Additionally, the vehicle must meet certain battery and sourcing requirements, with assembly primarily taking place in North America for the full credit.
To claim the EV tax credit, you must file Form 8936 when you file your tax return for the year in which you take delivery of the vehicle. This form can be used to claim either the Qualified Plug-In Electric Drive Motor Vehicle Credit or the new Clean Vehicle Credit.
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Claiming the credit for a leased vehicle
The process of claiming the electric vehicle tax credit for a leased vehicle differs from that of a purchased vehicle. While you can claim the credit for a leased electric vehicle, it is important to note that the tax credit belongs to the lessor, not the lessee. This is because leased electric vehicles are classified as "commercial vehicles", and as a result, they are eligible for the entire federal clean vehicle credit without needing to meet strict battery and sourcing requirements.
Due to a loophole in the IRA law, many new battery-powered vehicles that would not qualify for the credit if purchased can receive the full $7,500 credit if they are leased. However, as an individual, you cannot personally claim an EV tax credit on a leased vehicle because the automaker's bank is the owner. In most cases, manufacturers pass these savings on to consumers in the form of lower monthly payments and/or reduced upfront costs.
The credits reduce a filer's federal income tax for the year, subject to price and income caps. For example, if you took delivery of an EV eligible for a $7,500 tax credit in 2024 and your federal tax for that year was $8,500, your total tax would be $1,000. You would then pay the balance of whatever you owe or elect to be refunded the credit's amount (or apply the refund to the next tax year). It is important to note that EV tax credits are non-refundable, meaning they can only be applied to the tax owed in the year in which you took delivery.
To claim the credit, you will need to file a federal income tax return and Form 8936 for the year in which the vehicle was delivered and put into service. Form 8936 is the official IRS form used to claim the Qualified Plug-In Electric Drive Motor Vehicle Credit or the new Clean Vehicle Credit. You will also need the VIN (vehicle identification number) for your electric vehicle to complete the form.
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Claiming the credit for a business
The electric vehicle tax credit is available to both individuals and businesses. Businesses can claim tax breaks for a wider range of eligible electric vehicles, including those not manufactured in the U.S. The credit is available for vehicles purchased or leased for business use.
To claim the credit, you must file Form 8936 when you file your tax return for the year in which you take delivery of the vehicle. This is true whether you transferred the credit at the time of sale or are waiting to claim it when you file your taxes. The credit is non-refundable, meaning you can't get back more on the credit than you owe in taxes, and you can't apply any excess credit to future tax years. However, if you're claiming the credit as a depreciable business asset, you can carry forward any unused portion as a general business credit.
For businesses, the tax credit is available for vehicles purchased for their own use (not for resale) and are used primarily in the United States. The vehicle must also have a gross vehicle weight rating of less than 14,000 pounds.
The amount of the tax credit depends on the vehicle's weight and can be up to USD 7,500 for plug-in electric vehicles with a gross vehicle weight rating of less than 14,000 pounds. For vehicles with a gross vehicle weight rating of 14,000 pounds or more, the maximum credit is USD 40,000.
It's important to note that the seller must provide you with information about your vehicle's qualifications at the time of sale and must register online and report the same information to the IRS. If they don't, your vehicle won't be eligible for the credit.
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Frequently asked questions
The federal government's tax credit program for electric vehicles can reduce what you owe the IRS by up to \$7500 for a single tax year.
To be eligible for the full $7500 credit, your vehicle must be new and its manufacturer suggested retail price (MSRP) must not exceed \$80,000 for vans, sport utility vehicles, and pickup trucks, and \$55,000 for clean cars. Certain used/previously owned EVs can qualify for a tax credit of up to \$4000 or 30% of the sales price (whichever is less). To be eligible, your modified adjusted gross income (AGI) may not exceed \$300,000 if married and filing jointly or a surviving spouse.
You can claim the credit by filling out Form 8936 and attaching it to your Form 1040 when you file your tax return. Alternatively, you can receive the credit immediately at the point of sale by authorizing the IRS to transfer the credit to the dealership, which then reduces the purchase price by the credit's amount.
You cannot personally claim an EV tax credit on a leased vehicle because the automaker's bank is the owner. However, many manufacturers are passing on these savings to consumers via lower monthly payments and/or upfront costs.
