Beatrice Lang
Electric vehicles (EVs) are becoming increasingly popular, and federal tax credits are available to help make them more affordable. The federal tax credit for EVs is a benefit for those who purchase qualifying new or used electric vehicles. The amount of the credit depends on various factors, such as the vehicle's make and model, and year, as well as the buyer's income. The minimum credit amount is $2,500, and it can go up to $7,500 based on the vehicle's traction battery capacity. To be eligible for the credit, vehicles typically must have been assembled in North America and have a certain battery capacity.
| Characteristics | Values |
|---|---|
| Vehicle type | Plug-in electric or fuel cell |
| Battery capacity | Minimum 7 kilowatt hours |
| Vehicle weight | Less than 14,000 pounds |
| Vehicle price | $25,000 or less |
| Vehicle age | At least two years old |
| Final assembly | Must occur in North America |
| MSRP | $80,000 for SUVs, trucks, and vans; $55,000 for sedans, wagons, or hatchbacks |
| Buyer income | Up to $300,000 |
| Credit amount | Minimum $2,500; maximum $7,500 |
| Credit transfer | Allowed before purchase |
| Credit claim frequency | Once every three years |
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What You'll Learn
Plug-in electric or fuel cell vehicles with 7 kWh battery capacity
The federal government has been subsidizing the production and sale of electric vehicles for over a decade. The tax credit for purchasing a new plug-in electric or fuel cell vehicle with at least 7 kWh of battery capacity is $7,500. This credit is administered by the Internal Revenue Service and is known as the Clean Vehicle Credit.
To qualify for the full $7,500 tax credit, your vehicle must meet certain criteria. Firstly, the vehicle must have a minimum battery capacity of 7 kWh. This is a recent change as, previously, only vehicles with a minimum of 5 kWh of battery capacity were eligible for the credit. Secondly, the vehicle must be purchased new, with a maximum manufacturer suggested retail price (MSRP) of \$55,000 for cars and \$80,000 for vans, sport utility vehicles, and pickup trucks. The MSRP can be found on the vehicle's window sticker, which excludes destination fees and dealer-installed accessories. Thirdly, the “final assembly” of the vehicle must have occurred in North America. You can confirm the assembly location by referring to the Vehicle Identification Number (VIN) using the U.S. Department of Transportation's VIN decoder or an information label affixed to the vehicle.
In addition to the vehicle requirements, there are also eligibility caps on the buyer's income. Only individuals with a modified adjusted gross income (AGI) below certain thresholds for the current or prior tax year are eligible for the full tax credit.
It is important to note that the tax credit is non-refundable, meaning it can only be applied to the tax owed in the year you took delivery of the vehicle. Any excess credit cannot be carried over to future tax years.
To claim the credit, you must file Form 8936, Clean Vehicle Credits, with your tax return and provide the vehicle's VIN. The seller is also required to report specific information to you and the IRS, including your name and taxpayer identification number, for you to be eligible to claim the credit.
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Final assembly in North America
To qualify for the federal tax credit for electric vehicles, the vehicle must meet the requirements for "final assembly in North America". This means that the final assembly of the vehicle must have occurred in North America. The assembly location of a particular vehicle can be confirmed by checking its Vehicle Identification Number (VIN) using the U.S. Department of Transportation's VIN decoder or an information label affixed to the vehicle. The National Highway Traffic Safety Administration also provides a VIN database that includes final assembly details.
The requirement for final assembly in North America was added by the Inflation Reduction Act of 2022, which amended the Qualified Plug-in Electric Drive Motor Vehicle Credit (IRC 30D), now known as the Clean Vehicle Credit. This requirement took effect on August 17, 2022.
It's important to note that the eligibility criteria for the federal tax credit may change over time. For example, in 2024, the tax credit is capped at $7,500 for new vehicles and $4,000 for used vehicles, with additional eligibility requirements related to the vehicle's manufacturer suggested retail price (MSRP) and the buyer's income level.
To claim the tax credit, buyers typically need to file Form 8936, Clean Vehicle Credits, with their tax return and provide the vehicle's VIN. However, starting in 2024, buyers can choose to transfer the credit to the dealer at the point of sale, reducing the upfront purchase price of the vehicle. In this case, the dealer must submit certain information to the IRS through the IRS Energy Credits Online system to determine vehicle eligibility and the amount of the credit.
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Manufacturer's suggested retail price (MSRP) caps
The Manufacturer's Suggested Retail Price (MSRP) is the base retail price provided by the manufacturer, including 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. MSRP does not include taxes and other fees added on by the dealer, or the manufacturer's destination charge.
There are price caps in place for vehicles to be eligible for the tax credit. The MSRP of a car cannot exceed $55,000, while vans, sport utility vehicles, and pickup trucks cannot exceed an MSRP of $80,000.
For example, if you're looking at an SUV with an MSRP of $79,990, and the destination fee takes it over $80,000, the vehicle is still eligible. However, if the vehicle is priced above the MSRP limit, and there is a manufacturer incentive that brings it back down to the limit, the vehicle would not be eligible.
The vehicle's MSRP is also listed on the window sticker, along with the vehicle's weight, battery capacity, final assembly location, and Vehicle Identification Number (VIN).
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Buyer income limits
The buyer's income is a significant factor in determining eligibility for the federal tax credit on electric vehicles. The income limits are determined by the buyer's modified adjusted gross income (MAGI) and their tax filing status.
For 2024 and 2025, the income limits for claiming the tax credit are between $150,000 and $300,000, depending on the tax filing status. If the buyer's income is above these limits, they won't qualify for any federal EV tax credits.
It is important to note that the tax credit is non-refundable, meaning that you can't get back more credit than you owe in taxes, and any excess credit cannot be applied to future tax years.
Additionally, the tax credit is subject to other eligibility criteria, such as the vehicle's manufacturer suggested retail price (MSRP), the vehicle's final assembly location, and its battery and sourcing requirements.
The tax credit is available for both new and used electric vehicles, with different requirements and credit amounts for each. For new vehicles, the maximum tax credit is $7,500, while for used vehicles, it is $4,000 or 30% of the sales price, whichever is less.
To claim the tax credit, buyers need to file Form 8936, Clean Vehicle Credits, with their tax return and provide the vehicle's Vehicle Identification Number (VIN).
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Clean Vehicle Credit transfer
The Clean Vehicle Credit, formerly known as the Qualified Plug-in Electric Drive Motor Vehicle Credit, is a tax credit for buyers of certain plug-in electric vehicles (EVs) or fuel cell vehicles (FCVs). The credit can be worth up to $7,500, depending on the vehicle's traction battery capacity.
To qualify for the Clean Vehicle Credit, you must purchase a new, qualifying EV or FCV. The vehicle's manufacturer suggested retail price (MSRP) must not exceed $55,000 for cars and $80,000 for SUVs, trucks, and vans. Additionally, the vehicle must have a minimum battery capacity of 7 kilowatt-hours.
The Clean Vehicle Credit Transfer allows eligible taxpayers who purchase a qualifying vehicle to transfer the credit to an eligible entity, typically a registered dealer, in exchange for a reduced final amount due on the vehicle purchase. This means that instead of claiming the tax credit on their tax return, buyers can choose to reduce the upfront purchase price of the vehicle by the amount of the credit.
To transfer the credit, the buyer must meet all eligibility requirements for the New Clean Vehicle Credit and make the transfer election. The dealer must be registered with the IRS and must provide the buyer with a copy of the IRS's approval of the dealer's submission. The buyer will need to file Form 8936, Clean Vehicle Credits, when they file their tax return for the year in which they took delivery of the vehicle, regardless of whether they transferred the credit or are claiming it on their return.
It is important to note that the Clean Vehicle Credit Transfer applies specifically to the transfer of the credit to an eligible entity, and there may be additional requirements and considerations for claiming the credit directly on a tax return.
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Frequently asked questions
The maximum federal tax credit you can get for buying an electric vehicle is $7,500.
To qualify for the full $7,500 federal tax credit, the vehicle must be new, have a final assembly in North America, and meet new critical minerals and battery components requirements. The manufacturer's suggested retail price (MSRP) must be \$55,000 or less for cars and \$80,000 or less for SUVs, trucks, and vans. The buyer's income must also be below a certain threshold, typically between \$150,000 and \$300,000.
To claim the federal tax credit, you will need to file a tax return for the tax year in which you purchased the vehicle. You will need to provide the vehicle's identification number and the date of the transfer election to the IRS. You may also need to file Form 8936, Clean Vehicle Credits, with your tax return.
Yes, there may be additional incentives available at the state and local levels. For example, California's Clean Air Vehicle program grants carpool lane access to select electric vehicles, and New Yorkers may be eligible for a state-level rebate of up to $2,000 on top of the federal tax credit. Installing a home charging system for your electric vehicle may also make you eligible for the Alternative Fuel Vehicle Refueling Property Tax Credit.
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