Otis Singleton
Electric vehicles (EVs) are becoming increasingly popular, and with them, the need for accessible charging stations. To encourage the adoption of EVs, the federal government offers a tax credit of up to $7,500 for qualifying new electric vehicles and up to $4,000 for used electric vehicles purchased before September 30, 2025. This credit is known as the EV tax credit and is a tax break for those who buy or lease electric vehicles. However, there are important considerations and restrictions to keep in mind when applying for this credit. This includes understanding eligibility requirements, income limits, and the potential for additional incentives or restrictions at the state and local levels.
| Characteristics | Values |
|---|---|
| Amount of credit | Up to $7,500 for new EVs, up to $4,000 for used EVs |
| Who can apply | Individuals, businesses, head of household, and individual filers |
| Vehicle type | New, used, leased, or commercial |
| Vehicle price | $25,000 or less for used EVs, $80,000 for vans, SUVs, and pickup trucks, $55,000 for sedans, hatchbacks, and wagons |
| Application deadline | Before September 30, 2025 |
| Form | IRS Form 8936 |
| Additional incentives | California's Clean Air Vehicle Program, New York state-level rebate |
| Restrictions | Income limits, vehicle price caps, manufacturing guidelines, and state restrictions |
| Other benefits | Alternative Fuel Vehicle Refueling Property Tax Credit for installing EV chargers at home |
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What You'll Learn
Tax credit for leased EVs
The federal EV tax credit is a tax incentive for the adoption of electric vehicles. It is worth up to $7,500 for new EVs and up to $4,000 for used EVs. The credit is available to individuals and their businesses. To qualify for the credit, your modified adjusted gross income (AGI) must be below a certain threshold, and the vehicle must meet certain IRS specifications, including price caps and manufacturing guidelines. The credit is set to end for vehicles purchased after September 30, 2025.
Leased electric vehicles are classified as commercial vehicles, making them eligible for the entire federal clean vehicle credit without meeting strict battery and sourcing requirements. However, it's important to note that the tax credit for leased EVs belongs to the lessor (the leasing company) and not the lessee (the person leasing the vehicle). This means that any savings you receive would come in the form of a rebate or reduced lease price, if the dealer agrees to pass on any tax credit savings.
To benefit from the tax credit for leased EVs, you need to lease from a qualified dealer. Dealers must register to be qualified to pass EV credit savings to consumers. If you lease from a qualified dealer, they can transfer the value of the federal EV tax credit to you as a cash refund or a discount on the total price of the electric vehicle.
If you are considering leasing an EV, it is important to act before September 30, 2025, as the tax credit for leased EVs will no longer be available after this date. Additionally, keep in mind that there may be other incentives available at the state and local levels, such as rebates or discounts, that you can take advantage of when leasing an EV.
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State-level rebates
It is important to note that some states may not allow you to "double-dip" by claiming both a state-level rebate and a federal tax credit. Therefore, it is essential to understand the restrictions that come with applying for multiple incentives.
When purchasing an EV, it is also worth considering the installation of an electric vehicle charger in your home. This equipment can be eligible for a tax credit known as the Alternative Fuel Vehicle Refuelling Property Tax Credit, helping to reduce the costs of installing EV charging infrastructure.
To ensure you are taking advantage of all available incentives, it is recommended to research the specific state-level rebates and credits offered by your state or local government. These incentives can vary widely, and being informed will help you make the most of the available benefits when purchasing an EV.
Additionally, when considering an EV purchase, it is important to be aware of any restrictions or requirements that may apply. For example, some states may require you to purchase the vehicle from a licensed dealer or register the vehicle within a certain timeframe to be eligible for the rebate.
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Income limits
The EV federal tax credit of up to $7,500 for qualifying new electric vehicles and up to $4,000 for qualifying used electric vehicles is available until September 30, 2025.
To be eligible for the credit, there are income limits in place. These income limits are based on your modified adjusted gross income (MAGI). MAGI is generally your adjusted gross income (AGI) with certain deductions or income exclusions added. When claiming the EV credit, you can use the lesser of your MAGI in the year you take delivery of your EV or your MAGI from the year before you took delivery of the vehicle.
The income limits for the EV tax credit are as follows:
- $300,000 for married couples filing jointly or a surviving spouse
- $225,000 for head of household
- $150,000 for single and married filing separately
If your income exceeds these thresholds, you won't qualify for the EV tax credit. It's important to note that you must also meet other eligibility criteria, such as price caps on vehicles, to qualify for the EV tax credit.
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Qualifying vehicles
To qualify for the EV tax credit, your vehicle must be a new or used electric vehicle or plug-in hybrid vehicle purchased before September 30, 2025. The tax credit is worth up to $7,500 for new EVs and up to $4,000 for used EVs.
For new EVs, the vehicle's manufacturer suggested retail price (MSRP) must not exceed certain limits. For SUVs, pickup trucks, and vans, the threshold is $80,000. For sedans, hatchbacks, wagons, and other vehicles, the credit cuts off at $55,000. These limits are based on the vehicle's MSRP, not its sale price, so a heavily discounted luxury car would not qualify.
For used EVs, the vehicle must be purchased from a licensed dealer for $25,000 or less. The credit equals 30% of the sale price up to a maximum credit of $4,000.
It's important to note that the EV tax credit is a non-refundable tax credit, and your income must fall below certain thresholds to qualify. For example, if you're filing as a head of household, your income must be below $225,000, and for individual filers, the income threshold is $150,000.
Additionally, leased electric vehicles may qualify for the tax credit, but the credit belongs to the lessor, not the lessee. The lessee may receive savings in the form of a rebate or reduced lease price.
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How to claim
To claim the EV tax credit, you must file IRS Form 8936 with your federal income tax return. You will need the VIN for your electric vehicle to complete the form. You can either claim the credit on your taxes or transfer the credit to an eligible dealer for an immediate discount on the vehicle at purchase.
If you are filing as a head of household, you must earn below $225,000, and individual filers will qualify only with income below $150,000. The vehicle's MSRP must not exceed certain limits, so pricey EVs like the GMC Hummer EV, Lucid Air, and Tesla Model S won't qualify. For SUVs, pickup trucks, and vans, the threshold is $80,000. For sedans, hatchbacks, wagons, and other vehicles, the credit cuts off at $55,000.
If you are buying a used EV, you may be eligible for a clean vehicle tax credit of up to $4,000 if you buy a qualified used electric vehicle from a dealer for $25,000 or less. The credit equals 30% of the sale price up to a maximum credit of $4,000.
It is important to note that the EV tax credit is only available for vehicles purchased before September 30, 2025. After this date, the credit will no longer be available due to new legislation.
In addition to the federal EV tax credit, 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 might 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 you to "double-dip" and claim both a state-level and federal rebate.
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Frequently asked questions
You must buy a qualifying electric vehicle before 30 September 2025 to be eligible for the EV tax credit.
The EV tax credit is worth up to $7,500 for new electric vehicles and up to $4,000 for used electric vehicles.
You must file Form 8936 when you file your tax return for the year in which you take delivery of the vehicle. You will need the VIN for your electric vehicle to complete the form.
To qualify for the EV tax credit, your income must fall below certain thresholds, and the vehicle you plan to purchase must meet several IRS specifications, including price caps and manufacturing guidelines.
