The transition to electric vehicles (EVs) is gaining momentum, and the federal government is providing significant incentives to encourage this shift. The Clean Vehicle Tax Credit, part of the Inflation Reduction Act of 2022, offers substantial savings to eligible individuals and businesses that purchase new or used electric vehicles. This article will provide a comprehensive guide to understanding the EV tax credit, including eligibility requirements, how to claim it, and what vehicles qualify.
What is the Federal EV Tax Credit?
The federal EV tax credit is a financial incentive designed to make electric and plug-in hybrid vehicles more affordable. It provides a tax credit of up to $7,500 for new EVs and up to $4,000 for used EVs. The credit aims to accelerate the adoption of clean energy vehicles, thereby reducing carbon emissions and promoting environmental sustainability. This credit is available for both individual consumers and businesses.
Key Changes in 2024
Starting January 1, 2024, there are two major ways to benefit from the EV tax credit:
- Point-of-Sale Discount: You can transfer the tax credit to a registered dealer at the time of purchase. The dealer will then reduce the vehicle’s price by the credit amount, or provide an equivalent cash amount, making the savings immediate rather than waiting to claim the credit on your next tax return.
- Traditional Tax Credit: Alternatively, you can still claim the credit when you file your annual tax return by using Form 8936.
How Much is the EV Tax Credit Worth?
The value of the EV tax credit depends on whether you are buying a new or used vehicle:
New Electric Vehicles
- Maximum Credit: Up to $7,500.
- Calculation: The credit is calculated based on the vehicle’s battery capacity and other factors but is capped at $7,500.
- A base amount of $2,500 is awarded for vehicles with at least a 5kWh battery pack.
- An additional $417 is given for all battery packs.
- A further $417 per kWh is added for battery packs exceeding 5 kWh.
- Price Considerations: The full credit is available for vehicles with a sale price of $25,000 or more.
- MSRP Caps: There are also MSRP (Manufacturer’s Suggested Retail Price) limitations.
Used Electric Vehicles
- Maximum Credit: Up to $4,000.
- Calculation: The credit is 30% of the sale price, capped at $4,000.
- Price Cap: The sale price must be $25,000 or less.
Eligibility Requirements for New EV Tax Credit
To qualify for the new EV tax credit, several criteria must be met:
Vehicle Requirements
- Battery Capacity: The vehicle must have a battery capacity of at least 7 kilowatt-hours (kWh).
- Gross Vehicle Weight Rating (GVWR): The vehicle’s GVWR must be less than 14,000 pounds.
- Qualified Manufacturer: The vehicle must be made by a qualified manufacturer.
- Final Assembly: The vehicle must undergo final assembly in North America.
- Battery Components and Minerals: The vehicle must meet specific critical mineral and battery component requirements, which have been updated, and continue to tighten each year. As of 2024, at least 50% of battery components must be manufactured or assembled in the U.S. or a country with a free-trade agreement with the U.S. and at least 50% of critical minerals must be extracted or processed in the U.S or a country with a free trade agreement.
- Vehicle Use: The vehicle must be purchased for your own use, not for resale.
- Primary Use: The vehicle must be used primarily in the U.S.
Income Requirements
Your Modified Adjusted Gross Income (MAGI) cannot exceed:
- $300,000 for married couples filing jointly.
- $225,000 for heads of households.
- $150,000 for all other filers.
Eligibility Requirements for Used EV Tax Credit
The used EV tax credit has its own set of eligibility criteria:
Vehicle Requirements
- Sale Price: The vehicle must be sold for $25,000 or less.
- Model Year: The vehicle must be at least two model years older than the calendar year when purchased. For instance, a vehicle purchased in 2025 must be a 2023 model or older.
- Battery Capacity: The vehicle must have a battery capacity of at least 7 kWh.
- Previous Transfer: The used EV must be on its first transfer—not having been sold or titled to a new private owner—since August 16, 2022, or it must have not been previously transferred to a new owner (i.e., the current owner bought the EV new from a dealer).
- Dealer Purchase: The vehicle must be purchased through a licensed dealer.
Purchaser Requirements
- Individual Buyer: Only individuals can claim the used EV tax credit; businesses are excluded.
- Not the Original Owner: The buyer cannot be the original owner of the vehicle.
- Not a Dependent: The buyer cannot be claimed as a dependent on someone else’s tax return.
- No Prior Credit: The buyer must not have claimed another used clean vehicle credit in the three years before the purchase date.
- Income Limits: The buyer’s MAGI must not exceed:
- $150,000 for married couples filing jointly or a surviving spouse.
- $112,500 for heads of households.
- $75,000 for all other filers.
- You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your income is below the threshold for 1 of the 2 years, you can claim the credit.
How to Claim the EV Tax Credit
Claiming the EV tax credit involves several steps, depending on whether you opt for a point-of-sale discount or a tax credit.
Point-of-Sale Discount
- Verify Dealer Registration: Ensure the dealership is registered with the IRS.
- Transfer the Credit: Inform the dealer of your intent to transfer the credit. The dealer will then reduce the purchase price of the vehicle by the credit amount, or provide an equivalent cash amount, and take care of submitting the information to the IRS.
- Provide Required Information: Provide the dealer with a copy of your driver’s license or other government-issued ID and sign a form confirming your intention to transfer the credit to the dealer.
- Receive Copy of IRS Submission: The dealer must provide you with a copy of the IRS approval of the dealer’s submission.
Claiming the Credit on your Tax Return
- File Form 8936: Use IRS Form 8936, Clean Vehicle Credits, to claim the credit when filing your tax return.
- Vehicle Identification Number (VIN): You will need to provide your vehicle’s VIN on the form.
- Keep Records: Maintain all necessary documentation to support your claim.
Eligible Vehicles for 2024-2025
The list of eligible vehicles is constantly changing due to evolving battery sourcing and assembly requirements. Here is a list of some of the EVs that are eligible for the full $7,500 tax credit for 2024 and 2025:
- 2024-2025 Acura ZDX
- 2024-2025 Cadillac Lyriq
- 2025 Cadillac Optiq
- 2024-2025 Chevrolet Blazer EV
- 2025 Chevrolet Equinox EV
- 2025 Chevrolet Silverado EV
- 2025 Ford F-150 Lightning
- 2025 Genesis Electrified GV70
- Certain Tesla Models (Model 3 and Model Y variants)
To ensure that you have the most up-to-date information, refer to the IRS website for the most current list of eligible vehicles.
Note: It’s important to check the specific trim and battery configuration of a vehicle, as not all models within a brand may qualify for the tax credit.
Additional Incentives
Beyond the federal tax credit, you may also be eligible for state and local incentives, as well as utility rebates. These can further reduce the cost of purchasing an EV. Check your local government and utility websites for more information.
Commercial Clean Vehicle Tax Credit
Commercial fleets and tax-exempt organizations purchasing qualified commercial clean vehicles may also qualify for a tax credit:
- Maximum Credit: $7,500 for vehicles under 14,000 pounds GVWR.
- Maximum Credit: $40,000 for vehicles over 14,000 pounds GVWR.
- Calculation: The credit is 15% of the basis for plug-in hybrid vehicles and 30% for full battery or fuel cell EVs, or the incremental cost of the vehicle.
Charging Infrastructure Tax Credit
Don’t forget about the federal EV charging infrastructure tax credit. You can receive a 30% tax credit, up to $1,000, for the cost of home charging equipment and installation costs for personal use. The charger must be installed in a low-income or non-urban census tract, which can be found on the IRS website.
Conclusion
The federal EV tax credit offers a substantial opportunity for consumers and businesses to save on the purchase of an electric vehicle. Whether you opt for a new or used EV, understanding the eligibility requirements and how to claim the credit can significantly reduce your costs. With the new point-of-sale discount option, you can benefit from the savings immediately, making the transition to electric even more attractive. As always, it’s best to consult with a tax professional for guidance tailored to your personal tax situation, and to keep an eye on the IRS website for the most up to date information.
