Trystan Casey
Electric vehicles (EVs) are becoming increasingly popular, and many governments are incentivizing their purchase through tax credits. In the US, the federal tax credit for a new EV is up to $7,500, and there are additional incentives at the state and local levels. However, there are income limits for claiming the EV tax credit, and an individual's eligibility depends on their modified adjusted gross income (AGI). For example, for the 2024-2025 tax year, if you are single and your modified AGI exceeds $150,000, you will not qualify for the EV tax credit. The income limit for married couples filing jointly is $300,000, and for those filing as head of household, the limit is $225,000.
| Characteristics | Values |
|---|---|
| Maximum tax credit | $7,500 |
| Qualifying vehicles | New, previously-owned, and commercial clean vehicles |
| Qualifying vehicle type | Plug-in electric or fuel cell with at least 7 kWh of battery capacity |
| Qualifying vehicle price | MSRP of $80,000 for vans, SUVs, and pickup trucks; $55,000 for cars |
| Qualifying income | Modified AGI of $300,000 for married couples filing jointly; $225,000 for head of household; $150,000 for all other filing statuses |
| Additional incentives | State and local incentives, such as California's Clean Air Vehicle program and New York's state-level rebate |
| Leased vehicles | Classified as "commercial vehicles" and eligible for the entire federal clean vehicle credit |
| Used vehicles | Eligible for a tax credit of up to $4,000, limited to 30% of the vehicle's value, with a price limit of $25,000 |
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What You'll Learn
The $7,500 electric vehicle tax credit
To be eligible for the full $7,500 credit, the vehicle must meet certain requirements. Firstly, the vehicle must be new, and the final assembly must have occurred in North America. Additionally, the vehicle's manufacturer suggested retail price (MSRP) must not exceed certain thresholds, which vary depending on the type of vehicle. For cars, the MSRP limit is $55,000, while for SUVs, trucks, and vans, the limit is $80,000.
The tax credit also has income limits, which are based on the buyer's modified adjusted gross income (MAGI or AGI). For single individuals, the AGI limit is $150,000, while for married couples filing jointly, the limit is $300,000. If filing as head of household, the AGI limit is $225,000, and for all other filing statuses, the limit is $150,000. It's important to note that you can use the lesser of your MAGI in the year you take delivery of the EV or the previous year.
The $7,500 credit can be further broken down into two parts: the battery portion and the critical minerals portion. To be eligible for the battery portion of the credit (up to $3,750), a certain percentage of the vehicle's battery must be assembled or manufactured within North America. For the critical minerals portion of the credit (also up to $3,750), a certain percentage of critical minerals in the battery must be extracted or processed within the US or a country with a free-trade agreement with the US.
It's worth noting that there are additional incentives 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. However, some states may not allow "double-dipping," where you claim both a state-level rebate and a federal credit.
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Modified AGI thresholds
The Modified Adjusted Gross Income (AGI) thresholds are a crucial factor in determining eligibility for the Clean Vehicle Credit or electric vehicle (EV) tax credit. These thresholds vary depending on the tax filing status of the individual or business claiming the credit.
For married couples filing jointly or a surviving spouse, the modified AGI threshold is $300,000. This means that if their income exceeds this amount, they will not be eligible for the EV tax credit. Similarly, for individuals filing as head of household, the threshold is set at $225,000.
The modified AGI threshold for single filers is $150,000. This threshold also applies to all other filing statuses, ensuring consistency across different categories. It's important to note that taxpayers can use the modified AGI from the year they take delivery of the vehicle or the previous year, whichever is less, to determine their eligibility for the credit.
In addition to the modified AGI thresholds, there are other factors that come into play when determining eligibility for the Clean Vehicle Credit. The vehicle's manufacturer suggested retail price (MSRP) and the battery capacity are also considered. The MSRP limitations vary based on the type of vehicle, with SUVs, vans, and pickup trucks having a higher threshold of $80,000, while cars have a lower threshold of $55,000.
The battery powering the vehicle must also meet certain requirements to qualify for the credit. This includes a minimum battery capacity of seven kilowatt-hours (kWh) and compliance with critical minerals and battery component requirements. The specific percentage thresholds for critical minerals and battery components have been outlined by the Internal Revenue Service and continue to increase annually toward a 100% requirement in 2029.
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Critical minerals and battery sourcing requirements
The Clean Vehicle Credit (CVC) is a tax credit available to qualifying taxpayers who purchase a new, qualified plug-in electric vehicle (EV) or fuel cell electric vehicle (FCV). The maximum credit available is $7,500. To be eligible for the credit, the vehicle must meet certain requirements, including being purchased new, having a manufacturer suggested retail price (MSRP) below a certain threshold, and being used primarily in the U.S. In addition, the taxpayer's modified adjusted gross income (AGI) must be below certain thresholds.
One important requirement for vehicles delivered on or after April 18, 2023, relates to critical minerals and battery component sourcing. To be eligible for the $3,750 critical minerals portion of the tax credit, a certain percentage of the value of the battery's critical minerals must be extracted or processed in the United States or a country with which the U.S. has a free-trade agreement, or recycled in North America. This requirement ensures that the production of EV batteries contributes to strengthening supply chains with like-minded partners, as per the Inflation Reduction Act.
The percentage thresholds for the critical minerals requirement vary by year. For 2023, the applicable percentage is 50%, increasing to 60% in 2024, 70% in 2026, 80% in 2027, 90% in 2028, and finally reaching 100% in 2029. To determine the percentage of critical minerals that qualify, manufacturers must conduct due diligence that complies with industry standards for tracing battery materials.
To be eligible for the $3,750 battery components portion of the tax credit, a certain percentage of the vehicle's battery must be assembled or manufactured within North America. For 2023, the applicable percentage is 50%, increasing to 60% in 2024, 70% in 2026, 80% in 2027, 90% in 2028, and 100% in 2029. It is important to note that these requirements may change the amount of tax credit available to taxpayers.
In addition to the federal tax credit, some states offer additional incentives for EV purchases. For example, California's Clean Air Vehicle program grants carpool lane access to select electric vehicles, while New York offers a state-level rebate of up to $2,000 on top of the federal tax credit. However, it is important to be aware of any restrictions that may apply when applying for multiple incentives.
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State and local incentives
State and local governments across the United States offer a variety of incentives for the purchase of electric vehicles (EVs). These incentives can vary widely depending on the jurisdiction and are subject to change over time. Here are some examples of state and local incentives for electric vehicle purchases:
California:
- The state has implemented the Clean Air Vehicle (CAV) program, which grants carpool lane access to select electric vehicles.
- The Mojave Desert Old Car Buy Back and Scrap Program offers $1,000 for a qualified operating and registered vehicle that is 20 or more years old.
- The Lodi Electric rebate program offers a $1,000 rebate for residential customers who purchase a new or used zero-emission electric vehicle.
- The Antelope Valley Old Car Buy Back and Scrap Program offers $1,000 for a qualified operating and registered 1999 or older vehicle.
- El Dorado County provides a $599 incentive for the purchase or lease of an electric vehicle eligible for the DMV's CAV decal.
- The Monterey Bay Air Resources District offers incentives for the purchase of qualified new or used alternative fuel vehicles.
New York:
New York state offers a rebate of up to $2,000 for eligible electric vehicle purchases, in addition to the federal tax credit.
Other examples:
- The South Coast Air Quality Management District and the Mobile Source Air Pollution Reduction Review Committee have established a residential Electric Vehicle (EV) charging incentive program, offering a rebate of up to $250 for Level 2 (240v) EV charger hardware costs. Low-income residents may qualify for a total rebate of $500.
- The Transportation Authority of Marin offers an EV equipment grant program to assist public agencies in installing employee-only or publicly accessible EV charging stations, providing matching funds of up to $1,500 for Level 1 chargers and up to $3,000 for Level 2 chargers.
It is important to note that these incentives may have specific eligibility requirements, application processes, and funding availability. Interested individuals should refer to the relevant state or local agency websites for the most up-to-date information. Additionally, some states may have restrictions on claiming multiple incentives or "double-dipping."
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Used EV tax credits
The modified adjusted gross income (AGI) threshold for tax credits on electric vehicles (EVs) is $300,000 for married couples filing jointly or a surviving spouse. This applies to new clean vehicles purchased in 2023 or after.
Now, let's focus on the topic of used EV tax credits.
If you buy a qualified used electric vehicle (EV) or fuel cell vehicle (FCV) from a licensed dealer for $$25,000 or less, you may be eligible for a used clean vehicle tax credit. This credit is equal to 30% of the sale price, with a maximum credit of up to $4,000. To qualify, the vehicle must meet certain requirements, including having a model year at least two years older than the calendar year of purchase, a gross vehicle weight rating of less than 14,000 pounds, and a battery capacity of at least seven kilowatt-hours. The vehicle must also not have been previously transferred to a qualified buyer after August 16, 2022.
To claim the credit, the dealer must provide you with the required information at the time of sale and report it to the IRS. Additionally, the dealer must be registered with IRS Energy Credits Online, and the vehicle must be approved through the same platform at the time of sale. You will need to fill out Form 8936 when filing your tax return to report your election and provide the agency with the vehicle's information.
It's important to note that if you don't transfer the credit, it is non-refundable, and you can't get back more on the credit than you owe in taxes. Any excess credit also cannot be applied to future tax years.
In addition to federal tax credits, some states offer their own incentives. For example, California's Clean Air Vehicle program grants carpool lane access to select electric vehicles, while New Yorkers may be eligible for a state-level rebate of up to $2,000 on top of the federal tax credit. However, some states may not allow "double-dipping," so it's important to understand the restrictions before applying for multiple incentives.
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Frequently asked questions
Yes, there is an AGI limit for the electric vehicle credit. The limit depends on your tax filing status. For single filers, the AGI limit is $150,000. For married couples filing jointly, the AGI limit is $300,000. For head of household filers, the AGI limit is $225,000. For all other filing statuses, the AGI limit is $150,000.
The total tax credit available for a vehicle may not exceed $7,500. However, the amount of the credit depends on various factors, including the vehicle's manufacturer suggested retail price (MSRP), the taxpayer's AGI, the vehicle's battery capacity, and whether the vehicle meets certain critical minerals and battery component requirements.
The electric vehicle credit is a tax credit available to individuals and businesses who purchase or lease a new, qualified plug-in electric vehicle (EV) or fuel cell electric vehicle (FCV). The credit is intended to incentivize the adoption of clean energy vehicles and reduce carbon emissions.
To claim the electric vehicle credit, you must complete the necessary paperwork and submit it to the Internal Revenue Service (IRS). The specific forms and documentation required may vary depending on your location and the type of vehicle purchased. It is recommended to consult with a tax professional or refer to the IRS website for the most up-to-date information.
