Understanding the Electric Vehicle Tax Credit

A federal EV tax credit is here, thanks to the Inflation Reduction Act (IRA) — significant tax and climate legislation promoting clean energy. The credit of up to $7,500 for certain electric vehicles, called “clean vehicles,” aims to encourage more people to use EVs. However, there are many questions about how the EV tax credit works.

• Some buyers wonder if they can claim the credit because of income limits.
• Earlier this year, the Treasury and the IRS unveiled final rules for the federal electric vehicle tax credit, a key step in the Biden administration’s plan to accelerate the adoption of electric vehicles (EVs). Some see the regulations as a balance between incentivizing EV adoption and safeguarding against perceived threats from Chinese imports.
• Moreover, due to ongoing changes to EV tax credit rules, there are questions about which electric vehicles qualify for the full tax credit for the 2024 tax year (taxes filed in early 2025).
• Political implications: Will the election impact the EV tax credit, and could Elon Musk take on a role if former President Donald Trump is elected?

Despite the confusion, electric vehicle tax credits can benefit some consumers. Here is some information to help you navigate the latest EV credit changes and better understand which vehicles do (and don’t) qualify — and why.

EV Tax Credit Overview

How does the EV tax credit work?

Here are some of the key points to know about the federal electric vehicle tax credit.

Key Points:

• Under the IRA, the EV tax credit is in place for 10 years, until December 2032.
• The tax credit is taken in the year you take delivery of a qualifying clean vehicle.
• The credit is up to $7,500 for new vehicles. The credit amount considers factors like the vehicle’s sourcing and assembly, which must primarily be in North America for the full credit.
• Certain used/previously owned EVs can qualify for a tax credit of up to $4,000 or 30% of the sales price (whichever is less).
• As of Jan. 1, 2024, you can take the EV tax credit as a discount when purchasing the vehicle.

Income limits: One of the most critical points is that there are income limits for the clean vehicle tax break.

EV Tax Credit Income Limit

Your modified adjusted gross income (MAGI) is used for the following income limits, which apply to qualifying new clean vehicles.

When claiming the EV credit, the IRS allows you to use the lesser of your MAGI in the year you take delivery of your EV or your MAGI from the previous year.

Income limits for new qualifying electric vehicles

You won’t qualify for the EV tax credit if you are single and your modified adjusted gross income exceeds $150,000.

The EV tax credit income limit for married couples filing jointly is $300,000.

If you file as head of household and make more than $225,000, you will also not be able to claim the electric vehicle tax credit.

The EV credit income limit is $150,000 for all other filing statuses.

Qualifications and Income Limits for Previously Owned Eligible EVs

To qualify for the federal EV tax credit for previously owned clean vehicles, you must meet the following criteria:

• Be an individual who bought the vehicle for use, 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 three years before the purchase date

For the EV tax credit for used vehicles, your MAGI cannot exceed the following income limits:

What Vehicles Qualify for EV Tax Credit?

Once you know if you’re income-eligible to claim the electric vehicle tax credit, a big question on EV buyers’ minds is which vehicles qualify. The short answer is that very few models currently qualify for the full $7,500 electric vehicle tax credit. Others qualify for half that amount, while some don’t qualify at all.

Stricter rules adopted last spring limited the credit based on whether a vehicle meets battery and sourcing requirements. Additionally, more stringent EV tax credit requirements took effect on Jan. 1, 2024, further impacting which vehicles qualify.

Price Limits for New Vehicles

• Vans, pickup trucks, and SUVs with a manufacturer’s suggested retail price (MSRP) of more than $80,000 won’t qualify for the credit.
• For clean cars to qualify for the EV tax credit, the MSRP can’t be more than $55,000.
• A previously owned clean vehicle will qualify for the tax credit only if it costs $25,000 or less.

Note: “Used” or “previously owned” for EV tax credit purposes means that the car is at least two years old.

Battery and Sourcing Requirements

IRS guidance limits the number of EVs that qualify for the full $7,500 EV tax credit based on critical mineral and battery component requirements. These are effective for EVs placed into service after April 17, 2023.

Consequently, an electric vehicle that qualified for the full $7,500 tax credit on April 17 of last year might qualify for only half the tax credit amount moving forward or, in some cases, not qualify at all.

Tesla Tax Credit

Tesla models, like the Model Y and all Model 3 versions, were eligible for the full $7,500 EV credit through the 2023 tax year. However, not all Tesla models are eligible for the EV credit in 2024.

Commercial EVs

Last fall, Mullen Automotive became an IRS “qualified manufacturer” of commercial EVs. This designation means that some of the automaker’s electric vehicles can qualify for the up to $7,500 EV tax credit.

2024 EV Tax Credit Points of Sale

What is the EV tax credit 2024 point of sale rebate? As of Jan. 1, 2024, consumers may have the option to take the EV tax credit as a discount at the point of sale when purchasing the vehicle. This allows buyers to benefit from the credit without waiting until they file their tax return.

Claiming the EV Tax Credit

To claim the EV tax credit, you file IRS Form 8936 with your federal income tax return. You will need the VIN (vehicle identification number) for your electric vehicle to complete the form.

Is There a Federal EV Charger Tax Credit?

If you’re in the market for an EV home charger, the IRA revives a credit for electric vehicle chargers that expired two years ago. The “Alternative Fuel Refueling Property tax credit” is extended for 10 years — through Dec. 31, 2032.

Other IRA Tax Credits

The IRA contains billions of dollars in tax credits and incentives, not just for electric vehicles. There’s a tax break for numerous green home improvements, such as installing home solar panels.