Trystan Casey
The electric vehicle (EV) tax credit is a federal tax benefit for those who purchase qualifying new or used electric vehicles. The credit is worth up to $7,500 for new vehicles and $4,000 for used vehicles. The credit is set to last until December 2032, according to the Inflation Reduction Act (IRA). However, the specific vehicles that qualify for the credit may change over time as new rules take effect and manufacturers adapt to the changing conditions in the clean vehicle market.
| Characteristics | Values |
|---|---|
| Tax credit amount | Up to $7,500 for new electric vehicles and up to $4,000 for used electric vehicles |
| Tax credit type | Non-refundable |
| Eligibility | Individual taxpayers |
| Qualifying vehicles | Plug-in electric vehicles (EVs) or fuel cell vehicles (FCVs) |
| Timing | For vehicles placed in service in 2023 or after |
| Income limits | Modified adjusted gross income (MAGI) of $300,000 or less for joint filers or surviving spouses |
| Vehicle price limits | Manufacturer's suggested retail price (MSRP) of $55,000 for cars and $80,000 for vans, SUVs, and pickup trucks |
| Transferability | Can be transferred to dealers for an immediate discount at the point of sale or claimed on taxes |
| Dealer requirements | Must submit tax credit information to the IRS and provide buyers with a copy of IRS approval |
| Additional incentives | EV charger tax credit, state incentives, and local incentives |
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What You'll Learn
Electric vehicle tax credits for new vs. used vehicles
Electric vehicles are more efficient than gas-powered vehicles, and they can help you save hundreds of dollars per year on fuel and significantly reduce pollution. The Inflation Reduction Act (IRA) offers multiple incentives for the purchase or lease of electric vehicles (EVs), plug-in hybrid vehicles, and fuel cell vehicles.
Electric Vehicle Tax Credits for New Vehicles
If you buy a new electric vehicle, you may be eligible for a federal tax credit of up to $7,500. The tax credit is non-refundable, and you can choose to claim it on your taxes or transfer it to an eligible dealer for an immediate discount on the vehicle at purchase. To qualify for the tax credit, your income must be $300,000 or less, and the vehicle must meet several IRS specifications, including price caps and manufacturing guidelines. The manufacturer's suggested retail price (MSRP) cannot exceed $80,000 for vans, sport utility vehicles, and pickup trucks.
Electric Vehicle Tax Credits for Used Vehicles
If you buy a used electric vehicle, you may be eligible for a federal tax credit of up to $4,000. To qualify, the vehicle must be purchased from a licensed dealer for $25,000 or less, and it must have a model year at least two years older than the calendar year of purchase. The tax credit is non-refundable, and you can choose to claim it on your taxes or transfer it to the dealer for a discount on the vehicle's purchase price.
It is important to note that the list of eligible vehicles may change as new rules take effect and manufacturers adapt to the evolving clean vehicle market. To determine eligibility for the tax credit, you can use the tool on the FuelEconomy.gov website, which allows you to filter by purchase scenario, model year, and vehicle type. Additionally, some states offer their own incentives, such as California's Clean Air Vehicle program, which grants carpool lane access to select electric vehicles, and New York's state-level rebate of up to $2,000 on top of the federal tax credit.
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State-specific tax credits
In addition to federal tax credits, many states in the US offer their own electric vehicle (EV) tax credits, rebates, incentives, and exemptions. These state-specific tax credits can be claimed in addition to federal credits and can further reduce the cost of purchasing an EV. Here are some examples of state-specific EV tax credits:
Maryland
Beginning July 1, 2023, qualified EV and fuel cell electric vehicle (FCEV) purchasers in Maryland may apply for an excise tax credit of up to $3,000. This credit is first-come, first-served and limited to one vehicle per individual and 10 vehicles per business entity. Qualified vehicles must be propelled by an electric motor that draws electricity from a battery with a capacity of at least 4 kWh, have not been modified from the original manufacturer's specifications, and be purchased and titled for the first time between July 1, 2023, and July 1, 2027.
Alaska
Alaska Power and Telephone (AP&T) offers a rebate of $500 to residential customers who own a new or pre-owned EV, including electric motorcycles, with a minimum battery size of at least 14 kilowatt-hours (kWh).
Arizona
Arizona offers an alternative fuel and alternative fuel vehicle (AFV) use tax exemption. Arizona use taxes do not apply to natural gas or propane used in an AFV, AFVs converted to operate on alternative fuels, or the equipment used to convert a diesel vehicle to an AFV. Recognized alternative fuels include propane, natural gas, electricity, hydrogen, and blends of hydrogen with propane or natural gas.
California
The California Bureau of Automotive Repair's Consumer Assistance Program (CAP) offers a rebate of $1,000 to owners of personal motor vehicles who retire their vehicle early from operation and purchase a replacement vehicle that meets emission, fuel economy, and model year requirements. Applicants must provide proof of a failed smog test and may retire up to two vehicles annually. Low-income eligible applicants can receive $1,500 with proof of a completed smog test, pass or fail. The vehicle must be registered in the state for at least two years prior to retirement.
Colorado
Colorado offers a tax credit for qualified EVs titled and registered in the state. The credit amount for any qualifying truck is limited to the difference in the manufacturer’s suggested retail price between the qualifying truck and a comparable truck that operates on gasoline or diesel fuel.
These are just a few examples of the many state-specific EV tax credits available in the US. It's important to note that these credits and incentives may change over time, so it's always a good idea to check with your state's official sources for the most up-to-date information.
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Commercial vehicle tax credits
The federal EV tax credit offers a tax benefit for those who purchase qualifying new or used electric vehicles. The credit is worth up to $7,500 for new electric vehicles and $4,000 for used electric vehicles.
The commercial vehicle tax credit is available to businesses and tax-exempt organizations that purchase electric vehicles and mobile machinery. This credit is far less restrictive than the clean vehicle credit available to individual taxpayers, allowing businesses to claim tax breaks for a wider range of eligible electric vehicles, including those not manufactured in the US. The maximum credit amount for vehicles with a GVWR of 14,000 pounds or more is $40,000.
To qualify for the commercial vehicle tax credit, a vehicle must be subject to a depreciation allowance, with an exception for vehicles placed in service by a tax-exempt organization and not subject to a lease. The vehicle must also be made by a qualified manufacturer as defined by the IRC.
Partnerships and S corporations must file Form 8936, Clean Vehicle Credits, to claim the commercial vehicle tax credit. All other taxpayers report this credit on line 1y in Part III of Form 3800, General Business Credit. A tax-exempt entity must file a Form 990-T, Exempt Organization Business Income Tax Return, with an attached Form 3800.
It is important to note that the commercial vehicle tax credit is non-refundable, meaning that businesses cannot get back more on the credit than they owe in taxes. Any excess credit cannot be applied to future tax years.
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EV charger tax credits
The federal EV tax credit is a tax benefit for those who purchase qualifying new or used electric vehicles. The EV tax credit was originally discontinued a few years ago but was reinstated by the Inflation Reduction Act's Alternative Fuel Refuelling Property tax credit. This extension is in place until 31 December 2032.
The tax credit is worth up to $7,500 for qualifying new electric vehicles and $4,000 for qualifying used electric vehicles. The credit is non-refundable, so you can't get back more on the credit than you owe in taxes, and any excess credit cannot be applied to future tax years.
The EV tax credit also applies to EV charging equipment. If you install a home EV charging station, the tax credit is 30% of hardware and installation costs, up to $1,000. This includes the cost of the charging port, essential components and parts, and labour costs. The tax credit for business installations is up to $100,000 per EV charger.
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Tax credit eligibility
The electric vehicle (EV) tax credit is a federal tax benefit for those who purchase qualifying new or used electric vehicles. The credit is worth up to $7,500 for new vehicles and $4,000 for used vehicles. The credit is available until December 2032 and is offered to taxpayers who purchase qualifying electric vehicles or plug-in hybrid vehicles.
To be eligible for the tax credit, you must meet certain income requirements. For new clean vehicle purchases in 2023 and beyond, your modified adjusted gross income (MAGI) must be $300,000 or less if you file taxes jointly with your spouse or are a surviving spouse. Additionally, the vehicle's manufacturer suggested retail price (MSRP) cannot exceed $80,000 for vans, sport utility vehicles, and pickup trucks. For clean cars to qualify for the EV tax credit, the MSRP cannot be more than $55,000.
The EV tax credit can be claimed when you file your federal income tax return with the IRS. You will need to file Form 8936, Clean Vehicle Credits, and provide your vehicle's VIN. The amount of the credit depends on when you placed the vehicle in service (took delivery) and the vehicle's battery components and critical minerals. To find out if your vehicle is eligible for the credit, you can check the FuelEconomy.gov Tax Center or the IRS Clean Vehicle Tax Credit page.
In addition to the federal EV tax credit, some states offer separate tax credits or incentives for purchasing or leasing an electric vehicle. For example, Colorado offers a $5,000 tax credit for the purchase or lease of a qualifying electric or plug-in hybrid electric vehicle. Some businesses may also qualify for a commercial vehicle tax credit, which allows them to claim tax breaks for a wider range of eligible electric vehicles.
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Frequently asked questions
The electric vehicle tax credit is in place until December 2032.
The federal tax credit is worth up to $7,500 for new electric vehicles and $4,000 for used electric vehicles.
To be eligible for the tax credit, your modified adjusted gross income (MAGI) for either the current year or the prior year must be $300,000 or less. The vehicle's manufacturer suggested retail price (MSRP) cannot exceed $55,000 for clean cars and $80,000 for vans, pickup trucks, and SUVs.
