EV Tax Credit 2024: How It Works, What Qualifies

People who buy new electric vehicles may be eligible for a tax credit as high as $7,500, and used electric car buyers may qualify for up to $4,000 in tax breaks.

New this year, consumers can choose between claiming a nonrefundable credit on their tax returns or transferring the credit to the dealer to lower the price of the car at the point of sale, giving taxpayers more flexibility in how to apply the benefit.

However, there may be some hiccups for consumers as the changes roll out. Fewer cars are qualifying for the benefit in 2024 than previously, as battery manufacturing restrictions tighten.

What is the electric vehicle tax credit?

The electric vehicle tax credit, or the EV 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 can choose to either claim the tax credit on their federal returns or transfer the credit to an eligible dealership. For those who choose to transfer the credit, participating dealerships would then be able to either lower the cost of the vehicle by the corresponding credit amount or provide the consumer with a cash equivalent^[0]

To qualify for either option, 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.

Which cars qualify for a federal EV tax credit?

As of May 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.

How to qualify for the 2024 EV tax credit

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]

• Single and married filing separately: $150,000.

• Head of household: $225,000.

• Married filing jointly: $300,000.

• Single and married filing separately: $75,000.

• Head of household: $112,500.

• Married filing jointly: $150,000.

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.

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]

Used EV tax credit qualifications

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]

How the electric vehicle tax credit is calculated

The new 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.

Per the IRS, the requirements below apply to vehicles that are delivered (i.e., “placed in service”) to the taxpayer on and after April 18, 2023^[0]

How to claim the federal EV tax credit

To claim the credit, taxpayers can file Form 8936 when they file their 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]

Taxpayers who transfer the credit to the dealership for a direct discount still need to follow a few tax rules. Transferring can result in an immediate discount on your purchase rather than a reduction in your tax liability when you file the following year. However, it does not do away with having to report your purchase on your taxes.

If you transfer the EV credit to the dealer, you’ll also need to fill out Form 8936 when you file your return for that year to report on your election and to 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 when you file your tax return^[0]

What information do you need to claim the EV tax credit?

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.

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:

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:

EV rebates and incentives

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.

Leasing and the EV tax credit

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^[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.

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.