Beatrice Lang
Electric vehicles (EVs) are becoming increasingly popular, with more than 8.7% of new retail registrations coming from EV buyers in 2024. Driving electric offers many benefits, including saving on the cost of gas and taking advantage of electric car tax credits. The federal EV tax credit is a nonrefundable tax credit offered to taxpayers who purchase qualifying new or used electric vehicles. To qualify for the tax credit, certain conditions must be met, including vehicle specifications, price caps, income requirements, and manufacturing guidelines. The amount of the tax credit can be up to $7,500 for new vehicles and up to $4,000 for used vehicles, depending on various factors such as battery capacity and production, critical minerals, and vehicle assembly.
| Characteristics | Values |
|---|---|
| Vehicle type | New or used electric vehicle or plug-in hybrid vehicle |
| Vehicle price | MSRP must be under $80,000 |
| Vehicle weight | Up to 14,000 pounds |
| Battery capacity | At least 5 kWh |
| Final assembly | Completed in North America |
| Use | For your own use, not for resale |
| Recharge source | External plug-in |
| Vehicle operation | For legitimate business use >50% of the time |
| Buyer income | Modified adjusted gross income must be $300,000 or lower for married couples filing jointly or a surviving spouse |
| Credit amount | Up to $7,500 for new vehicles and up to $4,000 for used vehicles |
| Credit transfer | Can be transferred to an eligible dealer for an immediate discount on the vehicle at purchase |
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What You'll Learn
New and used electric vehicles
The electric vehicle (EV) tax credit is a federal tax benefit for those who purchase qualifying new or used electric vehicles. The amount of the credit depends on when you placed the vehicle in service (took delivery), regardless of the purchase date. The EV tax credit is a nonrefundable tax credit offered to taxpayers who purchase qualifying electric vehicles or plug-in hybrid vehicles.
For new electric vehicles, buyers may be eligible for a tax credit of up to $7,500. To qualify for the full credit, the vehicle must be new and eligible, and the buyer's income must fall below certain thresholds. The vehicle's manufacturer suggested retail price (MSRP) must also not exceed certain price caps, which vary depending on the vehicle type. For example, the MSRP must not exceed $80,000 for vans, sport utility vehicles, and pickup trucks.
For used electric vehicles, buyers may qualify for a tax credit of up to $4,000 or up to 30% of the purchase price, whichever is less. The vehicle must be plug-in electric or fuel cell with at least 7 kilowatt-hours of battery capacity, and it must be the first transfer of the vehicle.
It is important to note that the list of eligible vehicles for the EV tax credit is subject to change as new rules and regulations are implemented. Buyers should regularly check the FuelEconomy.gov website for the most up-to-date information on eligible models. Additionally, buyers should be aware of any state and local utility incentives that may be available for electric vehicles, as these can provide additional savings.
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Plug-in hybrid vehicles
To qualify for the tax credit, the vehicle must be purchased new and meet several specifications, including price caps and manufacturing guidelines. The vehicle's manufacturer suggested retail price (MSRP) must not exceed $80,000 for SUVs, pickup trucks, and vans, and $55,000 for sedans, hatchbacks, wagons, and other vehicles. The vehicle must also be manufactured in North America, and a certain percentage of the vehicle's battery must be assembled or manufactured within North America. To qualify for the battery portion of the credit (up to $3,750), the vehicle must meet the "critical minerals requirement," which stipulates that a certain percentage of critical minerals in the car's battery must be extracted or processed within the U.S. or a country with which the U.S. has a free-trade agreement.
In addition to the vehicle requirements, the buyer must also meet certain income requirements to qualify for the tax credit. For a household to qualify for a new car tax credit, the adjusted gross income must be up to $300,000. For those filing as a head of household, the income must be below $225,000, and for individual filers, the income must be below $150,000.
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Income limits
The income limits to qualify for the electric vehicle tax credit are determined by modified adjusted gross income (MAGI or AGI). The limits vary depending on the tax filing status and the year in which the vehicle was acquired.
For new clean vehicle purchases in 2023 and beyond, the MAGI for either the current year or the prior year must be: $300,000 or less for married couples filing jointly or a surviving spouse; $225,000 or less if filing as the head of a household; and $150,000 or less for single filers.
For used clean vehicle purchases, the MAGI for either the current year or the prior year must be: $150,000 or less for married couples filing jointly or a surviving spouse; $112,500 or less if filing taxes as the head of a household; and 75,000 or less for single filers.
It is important to note that the income limits are subject to change. The Inflation Reduction Act of 2022 altered the rules for the tax credit for vehicles purchased from 2023 to 2032. Therefore, it is recommended to refer to the IRS guidelines and use the tool on the FuelEconomy.gov website for the most up-to-date information on eligibility and income thresholds.
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Battery requirements
To qualify for the electric vehicle tax credit, the vehicle must meet certain battery requirements. The battery powering the vehicle must have a capacity of at least seven kilowatt-hours (kWh). This is the minimum credit amount of $3,751 ($2,500 + 3 times $417).
There are also critical mineral and battery component requirements that must be met for a vehicle to qualify for the tax credit. The critical mineral requirement stipulates that a certain percentage of critical minerals in the car's battery must be extracted, processed, or recycled within the United States or a country with a free-trade agreement. The battery component requirement states that a certain percentage of battery components must be manufactured or assembled in North America.
Each of these requirements can provide a credit of up to $3,750, for a total possible credit of $7,500 if both are met. These requirements apply to vehicles placed in service (delivered) on or after January 1, 2023, and took effect on August 17, 2022.
In addition, the vehicle must have a final assembly in North America to unlock any tax credits. This requirement took effect on August 17, 2022, and applies to vehicles purchased on or after this date.
It is important to note that the tax credit is non-refundable, meaning that any unused portion of the $7,500 cannot be refunded or carried forward to future tax years. The credit amount also depends on the date the vehicle was placed in service, regardless of the purchase date.
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Price caps
The price caps for the electric vehicle tax credit are based on the vehicle's manufacturer's suggested retail price (MSRP). The price caps are as follows:
- $55,000 for cars, wagons, and hatchbacks
- $80,000 for SUVs, vans, and light trucks
The MSRP includes manufacturer-installed options, accessories, and trim but excludes destination fees, dealer-installed options, taxes, and fees. It is important to note that the price caps are based on the MSRP, not the sale price, so a heavily discounted luxury car may not qualify for the tax credit.
The price caps for used electric vehicles are different. The used vehicle's sale price must be $25,000 or less, and it must be at least two model years old. The tax credit for a used EV is up to $4,000 or 30% of the sale price, whichever is lower.
In addition to the price caps, there are also income caps for the electric vehicle tax credit. The income caps are as follows:
- $150,000 for single and married filing separately
- $225,000 for the head of household
- $300,000 for married filing jointly
It is important to note that the income caps are subject to change and may vary depending on the tax filing status.
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Frequently asked questions
The electric vehicle (EV) tax credit is a federal tax benefit for those who purchase qualifying new or used electric vehicles.
People who buy new electric vehicles may be eligible for a tax credit of up to $7,500, and used electric car buyers may qualify for up to $4,000.
To qualify for the tax credit, your modified adjusted gross income must be between $300,000 or lower for married couples filing jointly or a surviving spouse. The vehicle's manufacturer suggested retail price (MSRP) must also not exceed $80,000.
The vehicle must be a new, qualifying plug-in electric or fuel cell electric vehicle. It must have a weight rating of up to 14,000 pounds, a battery capacity of at least five kilowatt-hours, and final assembly must be completed in North America.
Consumers can either choose to claim the credit on their taxes or opt to transfer the credit to an eligible dealer for an immediate discount on the vehicle at purchase. To claim the credit, file Form 8936, Clean Vehicle Credits with your tax return.
