10 Things You Need To Know About The Federal Tax Credit For Electric Cars In 2023 And 2024

The EV tax credit is the government’s incentive being offered to buyers of EVs to facilitate the clean energy movement. As of 2023, buyers of new EVs can claim up to $7,500 in tax credit, while pre-owned or used EVs qualify for up to $4,000 in tax credit. Starting from January 2024, consumers have the option to pass the tax credit to the dealership, which can deduct it from the sale price of the EV and offset the upfront costs of EVs.

This federal tax credit is non-refundable, meaning buyers can only claim the credit up to the amount of taxes they owe, and can only be carried over to future years if the full amount cannot be claimed initially. It’s available for battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and fuel cell electric vehicles (FCEVs). However, certain income limitations determine if you qualify for the credit.

For brand-new EVs, annual income must range from $150,000 to $300,000, while for used EVs, the bracket is halved. Eligible EVs must be manufactured in the United States, with a portion of their critical battery components produced, mined, and/or assembled in North America. An important change to note is that the previous cap on a manufacturer’s total EV sales, which stood at 200,000 and affected Tesla and General Motors, which ended the eligibility of the credit, has been lifted.

In order to give you the most up-to-date and accurate information possible, the data used to compile this article was sourced from various manufacturer websites and other authoritative sources, including Consumer Reports, IRS, Car and Driver, and Nerd Wallet. The list was derived from the latest expanded and modified electric vehicle tax credit regulations.

1 Consumers Can Pass The Tax Credits To The Dealership To Deduct It From The Sale Price

Though The Federal Tax Credit Is Non-Refundable

As of 2023, buyers of new electric vehicles in the United States can claim up to $7,500, a new tax credit, while pre-owned EVs will qualify for up to $4,000. Consumers have been afforded the option to transfer the credit to the dealer, which effectively brings down the price of the car at the point of sale, or claim the non-refundable credit on their tax bill.

The credit is non-refundable, which means it can only lower the tax bill but won’t increase the refund. From January 2024, the IRS intends to expand access to the credit, which will benefit eligible consumers. It will ensure they will be able to claim the credit at purchase time without having to wait until the next year to get the benefit on their tax returns.

2 The Tax Credit Is Available For Both BEVs, PHEVs, And FCEVs

The federal tax credit is available for a range of electric vehicles, including battery-electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and even fuel-cell electric vehicles (FCEVs). Some of the eligible electric vehicles are the Chevrolet Bolt, Ford F-150 Lightning, Tesla Model 3, Model X, and Model Y. These qualify for the full tax credit of $7,500.

Some other electric vehicles, such as the Ford Mustang Mach-E and Nissan Leaf, and a few PHEVs, like the BMW X5 xDrive50e, Chrysler Pacifica PHEV, and Jeep Grand Cherokee PHEV 4xe, receive a partial credit of $3,750. The tax credit for PHEVs is calculated at either 15 percent of the purchase price, factors like the vehicle’s MSRP, the difference in cost between the PHEV and the gas-powered version, or $7,500; whichever is the lowest.

3 The Maximum Tax Credit Available For Qualifying Vehicles Is $7,500

The maximum amount available for the federal tax credit for electric vehicles is $7,500 for qualifying vehicles. With the freedom to transfer this credit to the dealer or claim the non-refundable credit on their tax bill, you get the advantage of having either a $7,500-less tax bill for the year of delivery of the purchased vehicle when you file your federal income taxes, or $7,500 chopped off the MSRP upon purchase.

This maximum tax credit is available for fully electric vehicles, fuel cell vehicles, and plug-in hybrid electric vehicles, subject to specific eligibility requirements. In the past, the credit began to phase out once a manufacturer reached 200,000 total EV sales, which affected popular brands like Tesla and General Motors, but with the new regulations, the limit has been lifted.

4 The Credit Is Available For Both Used Electric Vehicles And New Ones

For federal tax credit for electric vehicles, used electric vehicles have been added to the list. This valuable incentive will further encourage the adoption of cleaner and more sustainable transportation options, used or brand new. However, this is subject to certain price limits for the vehicles, like the Volkswagen ID.4, to qualify.

For new vehicles, the MSRP of SUVs must be below $80,000, while sedans, wagons, or hatchbacks must be below $55,000. For used EVs, the price cap drops to $25,000. The credit began applying to used electric vehicles on the 1st of January 2023, at 30 percent of the purchase price or $4,000, depending on which is less.

Vehicles That Qualify For The Tax Credits:

• Cadillac Lyriq (2023-2024)
• Chevrolet Blazer (2024)
• Chrysler Pacifica PHEV (2022-2024)
• Ford F-150 Lightning (standard and extended range battery) (2022-2023)

5 Five EVs No Longer Qualify For Tax Credits

For these five electric vehicles, the federal tax credit has played a crucial role in promoting their adoption. If you purchased these vehicles and had them delivered before April 18, 2023, you may still qualify for the tax credit. The Treasury Department has updated its list and has removed these five EVs from their eligible vehicles list post-April 18, 2023.

These Five Vehicles Are:

• BMW 330e sedan (2021-2023)
• Volvo S60 PHEV (Extended Range and T8 Recharge)
• Audi Q5 TFSI e Quattro PHEV
• Genesis GV70 Electrified SUV
• BMW X5 xDrive45e SUV (2021-2023)

The BMW 330e sedan and the Volvo S60 Recharge PHEV were among the EVs that qualified for partial credit. At up to $5,836 and $5,419 respectively, they qualified because of their battery sizes and being made in North America.

6 The Tax Credit Is Subject To Income Limitations

For the new regulations, the IRS specified new modified adjusted gross income (MAGI) for tax-filing status with thresholds for different categories of individuals in determining eligibility for the federal tax credits for electric vehicles.

Tax-Filing Status For Electric Vehicles

For new cars

For Pre-Owned (Used) Vehicles

(Data was collected from NerdWallet)

For new cars, individuals who are identified as singles must have a MAGI of $150,000, while the threshold increases to $225,000 for heads of households and $300,000 for married couples filing jointly. With pre-owned vehicles, the income limits are halved.

7 Only EVs Manufactured In The U.S. Are Eligible For The Credits

The Tax Credit Availability Depends On The Source Of Critical Battery Components

Qualification for the full credit amount of $7,500 depends on certain requirements related to the vehicle’s manufacturing. For the first half of $3,750, 50 percent of the vehicle’s battery components must be produced and/or assembled in North America. Some vehicles like the twin Rivian R1T and R1S vehicles qualify for partial tax credits.

Vehicles That Qualify For Partial Tax Credits:

• BMW X5 xDrive50e PHEV (2024)
• Ford Escape PHEV (2022-2023)
• Jeep Wrangler 4xe PHEV (2022-2024)
• Lincoln Corsair Grand Touring PHEV (2022-2023)

For the second $3,750 credit, extraction of at least 40 percent of the critical minerals utilized in the vehicle’s battery must be in the U.S. or from a country in a free-trade agreement with the U.S. Materials used should also be recycled in North America.

8 You Must Be The Original Owner Of The Vehicle To Claim The Tax Credit

If you are buying a new EV, you will be required to file Form 8936 (Qualified Plug-In Electric Drive Motor Vehicle Credit) along with your tax return for the corresponding tax year. In this form, you will be required to provide the vehicle identification number (VIN) on your registration or the dashboard at the base of the windshield. The vehicle must be driven primarily in the United States.

For used EVs, you cannot be the original owner of the vehicle, and you cannot claim to be dependent on someone else’s tax return. In addition, you must not have claimed another clean vehicle credit for used vehicles in the three years before the purchase date. For both used and new EVs, you’d need to provide the date of sale, sales price, and vehicle’s battery capacity.

9 Only For Vehicles Purchased For Personal Use, Not For Commercial Purposes

The tax credits only apply to vehicles bought for personal use and not for commercial use. For commercial tax credits, businesses, and tax-exempt organizations have been allowed to benefit from the clean vehicle tax credit under IRC 45W. This credit can climb to as high as $40,000. It is calculated as 15 percent of the vehicle’s basis, or 30 percent if it’s a pure BEV or FCEV, depending on which is less.

The maximum credit is $7,500 if it has a battery capacity of seven kilowatts and weighs under 14,000 pounds and $40,000 for other vehicles with a 15 kWh battery and weighing 14,000 pounds or more. The vehicle must be used primarily in the United States to qualify, be manufactured for use on public roads, and not be intended for resale.

10 Leasing Company Gets The Tax Credit On Leased Electric Vehicles

According to the Treasury Department, a lease is considered a commercial transaction, and this means that the dealer or finance company that holds the lease retains ownership and receives the tax credit. This distinction has significant implications for how the tax credit is applied. Lessors have the option to pass along the tax credit or its full value to the lessee, but they are not obligated to do so.

To reduce the monthly lease payment, many lessors apply the tax credit, to make EVs more affordable for consumers. This immediately reduces the monthly payments, making the lease more financially feasible. With leases accounting for 34 percent of total EV sales in March, up from 18 percent in March 2023, this development makes leasing an EV an even smarter financial decision and could improve the percentage of purchase even more.