EV Tax Credit: Rules for New and Used Electric Vehicles

If you're in the market for an electric vehicle (EV) this year, there may be some savings in it for you — either upfront or later on.

Those 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. New in 2024, consumers can also opt to transfer the credit to an eligible dealer instead for an immediate discount on the vehicle at the point of sale.

However, there may be some hiccups for consumers as changes to the electric vehicle tax credit roll out: fewer cars are qualifying for the benefit in 2024 than previously as battery manufacturing restrictions tighten. Here's what you need to know about the federal tax incentives for electric vehicles and an overview of which cars may qualify for the new credit according to the IRS.

The EV tax credit is a nonrefundable tax credit offered to taxpayers who purchase qualifying electric vehicles or plug-in hybrid vehicles. Nonrefundable tax credits lower your tax liability by the corresponding credit amount but do not result in a refund of any excess credit amount.

In 2024, taxpayers also get another option: they can choose to transfer the tax credit to an eligible dealership instead of claiming it on their tax returns the following year. This would allow the dealer to lower the cost of the vehicle by the corresponding credit amount for an immediate point-of-sale discount^[0]

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As of November 2024, the following fully electric and plug-in hybrid vehicles may be eligible for either a full or partial tax credit if delivered on or after Jan. 1, 2024.

The IRS urges taxpayers to use the tool on the FuelEconomy.gov website for the most up-to-date information on eligible models. You can filter by purchase scenario, model year, and vehicle type and determine which car is eligible based on its date of delivery. Be sure to check with the dealer as well, the IRS warns, because some versions of the cars below may not qualify.

To qualify for the credit, your income must fall beneath certain thresholds, and the vehicle you plan to purchase must also meet several IRS specifications, including price caps and manufacturing guidelines.

Price cap

Vans, SUVs and pickup trucks must have an MSRP, or manufacturer's suggested retail price, of $80,000 or less to qualify. Other vehicles, such as sedans and passenger cars, are capped at $55,000. For used vehicles, the price cap drops to $25,000.

For new vehicles, the MSRP, as defined by the IRS, is the base retail price provided by the manufacturer, plus the retail price of each accessory or optional piece of equipment that is physically present on the car at the time of delivery to the dealer. For purposes of claiming the credit, MSRP does not include taxes and other fees added on by the dealer^[0]

EV tax credit income limits

Along with price caps on cars, the EV tax credit also sets limits on the modified adjusted gross income that taxpayers can make in order to qualify.

A nice bonus here is that, per the IRS, you can use your MAGI from either the year the car is delivered or the year before delivery^[0]

If your income precludes you from qualifying, there are also several tax strategies you can consider to lower your income throughout the year, such as maxing out your 401(k) or contributing to an HSA or FSA.

Final assembly requirements

To be eligible for the credit, vehicles must have had final assembly in North America. You can reference the National Highway Traffic Safety Administration’s VIN, or vehicle identification number, database to check out a car’s final assembly details^[0]

Qualifying used EV purchases can fetch taxpayers a credit of up to $4,000, limited to 30% of the car’s purchase price. Some other qualifications:

• Used car must be plug-in electric or fuel cell with at least 7 kilowatt hours of battery capacity.

• Only qualifies for the first transfer of a vehicle.

• Purchase price of car must be $25,000 or less.

• Car model must be at least two years old.

• Vehicle must weigh less than 14,000 pounds.

• Credit can only be claimed once every three years^[0]

  Internal Revenue Service. Used Clean Vehicle Credit. Accessed Mar 31, 2023.

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The new car tax credit, worth up to $7,500, consists of battery and sourcing requirements, each adding up to half of the credit. If the car meets both requirements, it is eligible for the full credit. If it meets only one requirement, it may be eligible for a partial credit of $3,750.

Option 1: How to claim the clean vehicle tax credit on your taxes

To claim the credit, you can file Form 8936 when you file your federal income taxes. The credit is nonrefundable, which means it can lower or eliminate your tax liability, but you won't get any overage of the credit refunded once your liability hits zero. You also won't be able to carry over any excess amount to offset future taxes^[0]

Some fine print: According to the agency, you generally can only claim the clean vehicle tax credit for the tax year the vehicle was delivered to you, not necessarily the year it was purchased^[0]

Option 2: How to transfer the clean vehicle tax credit to a dealer

Taxpayers who transfer the credit to the dealership get an immediate discount on the car rather than having to wait to claim a credit on their taxes. Although the discount has no effect on your tax bill, you still have to report the transaction on your tax return.

You’ll need to fill out Form 8936 when you file your return for that year to report on your election and provide the agency with your VIN. And buyer beware — if you take a rebate but are not eligible for it, you’ll be required to pay the IRS back^[0]

Before you leave a dealership with a new EV, make sure you have certain documents that you’ll need to claim the credit or report the purchase on your taxes.

If you’re claiming the credit on your tax return

Sellers must provide taxpayers with a report containing certain information about the vehicle — and this report should be furnished to the taxpayer by the date of the vehicle’s purchase. Make sure it includes the following:

• Name and taxpayer identification number (TIN) of the seller.

• Name and TIN of the taxpayer.

• Date of sale and sales price.

• Verification of the maximum tax credit the vehicle is eligible for. 

• The VIN, or vehicle identification number.

• The vehicle’s battery capacity. 

• Verification that the taxpayer is the original user of the vehicle.

• A statement of declaration from the seller under penalty of perjury^[0]

  Internal Revenue Service. Topic B — Frequently Asked Questions About Income and Price Limitations for the New Clean Vehicle Credit. Accessed Mar 31, 2023.

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If you’re transferring the credit to the dealer

If you’re electing to transfer the credit to the dealer for a direct discount, you must disclose your taxpayer identification number — typically your Social Security number — and a photo ID at the time of purchase:

You must also officially attest to, or confirm, the following information:

• Your modified adjusted gross income (MAGI) falls within the eligibility threshold.

• You understand that you must repay the IRS any rebate amount you accepted if your MAGI was above the accepted limits.

• The car will be primarily for personal use.

• You will file a tax return for the tax year in which you bought the car and provide the vehicle’s identification number and the date of the transfer election to the IRS.

• You elected to voluntarily transfer the credit^[0]

  Internal Revenue Service. Topic H — Frequently asked questions about transfer of New Clean Vehicle Credit and Previously Owned Clean Vehicles Credit. Accessed Jan 25, 2024.

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With all the focus on credits, it’s important to know about additional incentives on the state and local levels. California’s Clean Air Vehicle program, for example, grants carpool lane access to select electric vehicles. And New Yorkers might be eligible for a state-level rebate of up to $2,000 on top of the federal tax credit.

Make sure you’re aware of any restrictions that come with applying for multiple incentives, though. Some states may not allow you to “double-dip” or claim a state-level rebate on top of a federal one.

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Although individual consumers can’t claim the clean vehicle tax credit when leasing an EV, they might still see some trickle-down savings passed down from the dealer if they choose to lease.

Some businesses (i.e., dealerships and leasing agencies) may qualify for another type of tax credit called the commercial vehicle tax credit. The commercial credit is far less restrictive than the clean vehicle credit available to individual taxpayers. It allows businesses to claim tax breaks for a wider range of eligible electric vehicles, including ones that were not manufactured in the U.S.^[0]

Even though the dealership gets the tax credit for purchasing the car, the potential benefit to individual consumers here is that the dealer can, in theory, then pass down the savings by lowering the leasing cost by the credit amount.

A word of caution for potential lessees, though: Just because the dealership could pass those savings onto you, doesn’t mean it will. Dealers aren’t required to give customers a discount on their leases, so it may require some negotiating on your end.

Assessing the transparency of any deal that claims the savings are being passed down may also require research and shopping around to ensure you’re getting the best deal. Plus, there are other factors about leasing that you may want to take into account.

» MORE: Leasing vs. buying an electric car: how to compare

The clean vehicle credit expansion is exciting news for taxpayers looking to go green, but it still remains fairly complicated and nuanced — especially given the murk surrounding the new sourcing requirements that are set to adjust each year. If you’re confused about your eligibility or want guidance for your personal situation, consider consulting a qualified tax professional, such as a CPA or a tax preparer, before you sign on the dotted line.