EV tax credit: What to know before you buy

Driving electric is no longer just for climate-conscious car buyers. The EV market has experienced dramatic growth over the past few years, with more than 8 percent of new retail registrations coming from EV buyers in 2023, according to Experian.

At the same time, electric vehicle options continue to diversify and now include a wide selection of styles, financing and price points. Driving electric also comes with many money-saving perks. Besides the obvious — saving on the cost of gas — there are electric car tax credits for those who purchase an electric vehicle. Depending on your home state, owning an electric vehicle can save you thousands.

What is the EV tax credit?

The EV tax credit is a financial incentive built by the government to encourage drivers to purchase an electric car. This incentive is not a check you receive in the mail following a vehicle purchase but rather a tax credit worth up to $7,500 that you become eligible for.

This credit applies to all electric and plug-in vehicles, but specific credit amounts can be found on the U.S. Department of Energy’s website, fueleconomy.org. Now, in 2024, Liz Najman, leader of policy research at Recurrent Auto, explains that drivers can use the credit at participating dealerships at the point of sale.

“The EV tax credit had been around for a while, and it was reinvigorated starting in 2023 with the Inflation Reduction Act, and it basically is a way for the government to stimulate growth in the clean vehicle segment and to help the U.S. both onshore manufacturing of clean vehicles, and build and drive more clean vehicles to meet our to meet worldwide climate goals.”

EV tax credit requirements

While the EV tax credits incentivize drivers to purchase EVs, not every type of driver or vehicle will result in a tax deduction. Consider the requirements that you and your future vehicle must have ahead of securing an auto loan for an EV purchase.

How to qualify

Depending on the age of your electric or hybrid vehicle, certain specifications must be met for it to qualify for available incentives.

• If your vehicle was purchased in 2022 or before:

  • Have been purchased after December 31, 2009.
  • Must be a new vehicle, not used.
  • Must be a purchased vehicle, not leased.
  • Have a weight rating of up to 14,000 pounds.
  • Hold a battery capacity of at least four kilowatt hours (kWh).
  • Be for use primarily in the United States.
  • For your own use, not for resale.
  • Use an external plug-in recharge source.

• If your vehicle was purchased in 2023 or after:

  • Buy it for your own use, not for resale.
  • Use it primarily in the U.S.
  • Have a battery capacity of at least seven kWh.
  • Have a gross vehicle weight rating of less than 14,000 pounds.
  • Be made by a qualified manufacturer.
  • Undergo final assembly in North America.
  • MSRP below $80,000 for vans, sport utility vehicles and pickup trucks and $55,000 for other vehicles.

• If your used vehicle was purchase in 2023 or after

  • Be an individual who bought the vehicle for use and not for resale.
  • Not be the original owner.
  • Not be claimed as a dependent on another person’s tax return.
  • Not have claimed another used clean vehicle credit in the 3 years before the purchase date.
  • Have a sale price of $25,000 or less.
  • Have a model year at least 2 years earlier than the calendar year when you buy it. For example, a vehicle purchased in 2023 would need a model year of 2021 or older.
  • Not have already been transferred after August 16, 2022, to a qualified buyer.
  • Have a gross vehicle weight rating of less than 14,000 pounds.
  • Be an eligible FCV or plug-in EV with a battery capacity of at least seven kWh.
  • Be for use primarily in the United States.
  • Be bought from a dealer.

It is also important to remember that purchasing the vehicle alone does not ensure that you get the tax credit. You must file Form 8936 with the IRS.

Income and the EV tax credit

Any driver who submits the necessary information for a qualifying vehicle using Form 8936 may be eligible for an EV tax credit. However, the amount of income you make can affect what tax credits you receive.

If you make a certain amount of money, more than $300,000 for married couples filing together, $225,000 for heads of households and $150,000 for all other filers, you will not qualify for tax credits.

State and local EV tax credits and incentives

Unfortunately, not every state offers EV tax credits and incentives. In fact, more than half of the states in the country do not have an EV tax credit program. So, before you set out to buy a charging station for your garage, determine how much you can save in your home state.

EV tax credits by vehicle brand

Here are some specific EV tax credits offered by vehicle brands. Just as each state differs, consider the benefits from one vehicle brand compared to another.

The following vehicles qualify for the full $7,500 tax credit as long as they are placed in service between January 1st and December 31st, 2024.

• 2024 ZDX EV
• 2024 Cadillac Lyriq
• 2024 Chevrolet Blazer EV
• 2022, 2023 Chevrolet Bolt, Bolt EUV
• 2024 Chevrolet Equinox EV
• 2022, 2023, 2024 Chrysler Pacifica Hybrid PHEV
• 2022, 2023, 2024 Ford F-150 Lightning
• 2024 Honda Prologue
• 2023, 2024 Tesla Model 3
• 2023, 2024 Tesla Model X
• Most 2023, 2024 Tesla Model Y
• Most 2023, 2024 Volkswagen ID.4

These vehicles, placed in service between January 1st and December 31st, 2024, can receive a partial credit of $3,750.

• 2023, 2024 Audi Q5
• 2022, 2023, 2024 Ford Escape Plug-In Hybrid
• 2022, 2023, 2024 Jeep Grand Cherokee 4xe
• 2022, 2023, 2024 Jeep Wrangler 4xe
• 2022, 2023, 2024 Lincoln Corsair Grand Touring
• 2024 Nissan Leaf
• 2022, 2023, 2024 Rivian R1S, R1T

Source: Consumer Reports

To find a car that qualifies for the credit, check out the U.S. Department of Energy’s list of eligible vehicles.

What’s new in 2024

Electric vehicles are still some of the most expensive cars on the market, and until more are produced, they will predictably stay at a steeper price point. But because manufacturers are prioritizing green vehicles, and the government is looking to reward that, the tax credit likely won’t disappear anytime soon. And if you have been interested in going green for a while, now might be a good time to act.

This is especially true as shoppers can now redeem their credit at the dealership’s point of purchase. Najman explains that drivers will not have to wait until the end of the year to claim it on their returns.

“You could actually use the credit at the point of sale as a down payment as a discount.” This, she explains, “makes a huge difference, particularly for lower and middle income buyers, for whom the purchase price was often the biggest barrier.”

However, you must find a dealership registered with the IRS to get the credit — at the point of sale or afterward. Those who might not have been eligible for the credit due to full tax liability can still benefit from these updated regulations. Recurrent has a list available of dealerships that offer rebates, but checking with the IRS will confirm that you can get the credit.

Good news, though: You are likely to find one in your area that can facilitate a seamless credit redemption process. According to the American Automobile Dealers Association, over 7,000 dealers are registered with the IRS as of the end of 2023.

Used EV tax credits

Drivers who may not be able to afford a brand-new EV can still benefit from the tax credit. When buying a used electric vehicle costing up to $25,000, drivers can receive a tax credit of up to 30 percent of the purchase price, with a $4,000 cap.

The IRS outlines the following requirements:

• The vehicle’s price must be below $25,000.
• Your gross annual income has to be under $150,000 for joint filers, $112,500 for head-of-household filers and $75,000 for single filers.
• The gross vehicle weight rating must be under 14,000 pounds.
• The model year has to be at least two years prior to the year it was purchased.

Once you find a used vehicle that meets these requirements, it is recommended that you use the tax credit as your vehicle down payment. A larger down payment can dramatically reduce your monthly car payment and with more used EVs on the market, you can walk away with a great deal.

“The number of eligible vehicles has skyrocketed,” says Najman. “There’s really a lot of when you look at vehicles under that $25,000 price threshold, there’s a ton of availability.” she shares.

The 2022 Kia Niro EV, for example, averages just under $23,000, and with the credit, you can buy one for under $20,000 — a price tag you are strapped to find elsewhere.

Making the decision to buy an EV

Just as with buying a traditional gas vehicle, deciding to dive into the world of electric vehicle buying requires questioning several factors, such as cost, size and practicality. But buying an EV takes extra consideration. Before deciding whether now is a good time to buy an electric vehicle, here are some questions to ask yourself.

• Is there charging available in my area? It is important to confirm that your area has available charging stations before deciding to purchase an EV. Use resources like those offered through EVgo to explore options before purchasing.
• What is the vehicle range? You will need to confirm that your new vehicle’s range fits your typical driving routine — and any trips you might be planning.
• What is the expected vehicle maintenance? While you will need to set aside some cash for service checks, you won’t have to worry about costs from oil changes or other emissions equipment.
• How much is EV insurance? EV insurance costs range, so it’s best to research and determine which lender best suits your needs. Check out Bankrate’s guide to electric vehicle insurance.
• Should I lease an EV? Consider leasing over buying if you are able to find beneficial manufacturer incentives or if you prefer to change your vehicle every few years.
• Should I buy new or used? Weigh available incentives and your budget.

The bottom line

If the time to purchase a new set of wheels is upon you, consider buying a new or used electric vehicle to help address climate change and benefit from EV tax credits and incentives. Before deciding on a particular EV, do your homework and investigate whether there are tax credits still available.

It’s also important to look into the availability of charging stations in your area and, depending on how you plan to use the vehicle, confirm the battery range of the EV you’re interested in.

When it comes time to find financing and insurance, compare rates and differing costs for buying EVs over traditional ones.

FAQs about EV tax credits

• Do you get a tax credit for leasing an electric car?

  The federal tax credit does not apply to those leasing electric vehicles. Instead, that money will go to the lessor. However, if the lessor chooses to factor that incentive into your lease agreement, this can still lower a monthly payment.Mention this during negotiation to try and save money. Certain states have incentives that apply regardless of whether you are leasing or buying.

• Will the federal EV tax credit always be around?

  The credit will likely remain indefinitely, especially with increased pushes for more climate-aware vehicles. However, due to the phase-out structure of tax credits, the available vehicles are constantly shifting.When a particular manufacturer reaches 200,000 electric vehicles sold for use in the United States, those vehicles are no longer eligible for credits. Because of this rule, it’s important to check if the vehicle you intend to purchase is still available for credit.

• Can a household receive multiple EV tax credits?

  If two members of the same household purchase electric vehicles for themselves, they can separately claim the credit for their individual cars. If the two buy an EV together, the credit may only be claimed once.