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How Does The EV Tax Credit Work?

We all want to save on our taxes, and what better way than by helping out the planet? With the expanded federal EV tax credit created by the Inflation Reduction Act, you may be eligible for a significant amount just for buying an EV. Let's take a look at what an electric vehicle tax credit is, the different types of credits, and what vehicles may qualify for this tax break.

What Is EV Tax Credit?

EV tax credits are government incentives created to encourage the use of electric vehicles. Based on the type of credit, a certain amount of money is discounted from the taxes an EV owner owes. The 2022 Inflation Reduction Act changed the Qualified Plug-in Electric Drive Motor Vehicle Credit in the United States. The tax credit, known now as the Clean Vehicle Credit, requires that the final assembly for a purchased EV be in North America (as of August 17th, 2022).

How Does EV Tax Credit Work?

The Electric Vehicle (EV) Tax Credit works by reducing the amount of U.S. federal income tax you owe. If you buy a qualifying electric or plug-in hybrid vehicle, you can receive a credit ranging from $2,500 to $7,500, depending on the car's battery capacity. To receive the credit, the vehicle must be new and primarily used in the U.S. The credit applies only to the year the vehicle was purchased, and if your tax liability is less than the credit amount, you won't get the difference as a refund. This incentive is designed to make electric vehicles more affordable and encourage their adoption to help reduce environmental impact.

Tax Liability: The credit is non-refundable, which means it can reduce your federal income tax liability to zero, but you won't receive a refund for any credit amount that exceeds your tax liability. For example, if your tax liability is $5,000 and your EV credit is $7,500, your tax liability drops to zero, but you do not receive the remaining $2,500 as a refund.

Phase-Out: The credit begins to phase out for a manufacturer’s vehicles when that manufacturer has sold 200,000 qualified vehicles. For instance, Tesla and GM have already reached this limit, and as a result, their vehicles are no longer eligible for the federal tax credit.

This tax incentive is designed to make purchasing an electric vehicle more affordable, thereby encouraging more consumers to transition to environmentally friendly transportation options.

EV Tax Credit Eligibility for 2023

Vehicles Purchased on or after January 1, 2023:

All new electric, plug-in hybrid, and fuel cell vehicles may be eligible for a federal income tax credit up to $7,500, depending on several factors including the vehicle's final assembly location in North America, the MSRP, and whether the buyer's income falls within the specified limits.

Income Limits: The credit is available only to individuals whose modified adjusted gross income is below $150,000 for single filers, $225,000 for heads of households, or $300,000 for married couples filing jointly.

Battery and Mineral Requirements: To qualify for the full credit, a significant portion of the vehicle's battery components must be manufactured or assembled in North America, and a certain percentage of the critical minerals used must be sourced from the U.S. or countries with which the U.S. has free-trade agreements.

Point of Sale Option: Beginning January 1, 2024, buyers can opt to receive the EV tax credit at the time of purchase, directly reducing the price of the vehicle, rather than claiming it later on their tax returns.

Pre-Owned Electric Vehicles Purchased in 2023 or After:

Eligible for a tax credit of up to $4,000, depending on the vehicle's price and the buyer's income, providing that the vehicle is purchased from a qualified dealer and meets specific price criteria.

These updates are part of efforts to boost domestic manufacturing and reduce environmental impact, reflecting the goals of the Inflation Reduction Act of 2022. Always check with the dealer or official resources to ensure the vehicle you are considering qualifies for the credit under the latest rules. For more detailed information, visit the official IRS page or the Department of Energy’s guidelines on EV tax credits.

What Electric Vehicles Are Assembled in North America?

A variety of vehicle manufacturers have final assembly in North America, but only for certain brands and model years. You can find more information about your car's specifications by getting a vehicle history report, but to help you determine where your recent EV purchase was assembled, consult the list below. You'll also want to check whether these manufacturers have met their sales cap by looking online or contacting a company representative.

Electric Vehicles Assembled in North America [2022]

Tesla Model 3
Tesla Model X
Tesla Model S
Tesla Model Y
Chevrolet Bolt EUV
Chevrolet Bolt EV
Chrysler Pacifica PHEV
Audi Q5
BMW 330e
BMW X5 (PHEV)
Ford Escape PHEV
Ford-ETransit
Ford F-150 Lightning
Ford Mustang Mach E
GMC Hummer EV Pickup
GMC Hummer EV SUV
Jeep Wrangler
Lucid Air
Rivian R1S
Rivian R1T
Rivian EDV
Nissan Leaf
Lincoln Aviator PHEV
Lincoln Corsair PHEV
Volvo S60 Recharge
BMW 330e
Jeep Grand Cherokee

Electric Vehicles Assembled in North America [2023]

Nissan Leaf
BMW 330e
BMW X5 (PHEV)
Mercedes EQS SUV
Lincoln Aviator PHEV
Cadillac Lyriq
Chevrolet Bolt EV
Jeep Grand Cherokee 4xe
Jeep Wrangler 4xe

EV Tax Credit Frequently Asked Questions

Can I Still Get the EV Tax Credit in 2024?

Yes, you can still qualify for an EV tax credit in 2024 if you buy a new electric vehicle that meets specific criteria, like having its final assembly in North America and adhering to certain manufacturing and income requirements. Remember, you can also apply this credit at the point of sale, reducing the price right away instead of waiting for tax time. For the latest details, check the IRS website or consult with a tax professional.

How To Claim EV Tax Credit?

To claim your EV tax credit, you'll need to fill out IRS Form 8936. This form is designed to help qualifying taxpayers to claim their EV tax credit; it can be downloaded from the IRS website, after which it needs to be printed and filled out in full. Check whether your vehicle is eligible for the electric vehicle tax credit by consulting a vehicle manufacturer representative or the IRS.

How Much Tax Credit Do You Get for Electric Vehicles?

The exact amount of tax credit you receive will depend on the type of vehicle you purchased, the manufacturer who created the car, and when it was put in service. If your vehicle qualifies, you may be eligible for up to $7,500 in credits. This tax credit is nonrefundable, so the vehicle buyer must have a federal tax liability. You can't get full or partial benefits without a federal tax liability. This means that if you don't owe federal taxes, you aren't eligible to receive money. For example, if you owed $5,000 in taxes and qualified for the electric car tax credit, you would not get the full $7500 (only $5000.) This amount does not carry over to taxes applicable to the following year either, only during the year you purchased your electric vehicle.

Does Tesla Get Federal Tax Credit?

Certain models of Tesla are eligible for the Electric Vehicle Tax Credit, depending on when they were manufactured and where their final assembly took place. Check the Tesla official website or contact a representative to see if your vehicle purchase qualifies for this credit. In addition, if you're interested in used Teslas or other EVs, you can get more information through a vehicle history report. These reports can help you find essential details about any available car, making it easier to get better prices and avoid common car-buying scams.