EV Tax Credits: What’s New and Who Qualifies?

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Understanding federal tax credits is not an easy feat, especially when it comes to ever-evolving laws around tax credits for electric cars. If you bought an EV (or are thinking of buying one) in 2024, you may qualify for an IRS tax credit worth up to $7,500. But not all EV cars qualify, and not every person that buys a qualifying EV can claim the credit. Here’s everything you need to know about the 2024 EV tax credit.

What Is the EV Tax Credit?

The EV tax credit is a benefit offered by the government to encourage people to buy electric vehicles. You might think of it as a discount that you can get when you file your taxes. This tax credit can help make electric cars more affordable.

Here are some key points to know:

• Recent updates: The Inflation Reduction Act of 2022 changed the requirements for EV tax credits, including where EV batteries are made. These changes apply to vehicles placed in service from Jan. 1, 2023, onward.
• Time and eligibility: Starting on Jan. 1, 2024, the IRS requires that these credits are approved at the time of purchase.
• Credit amounts: New EVs may qualify for either $3,750 or $7,500, depending on battery sourcing requirements. Used EVs may qualify for a $4,000 credit.
• Non-refundable: The credit only reduces what you owe in taxes — any unused portion won’t be refunded or carried over to future years.
• Claim options: In 2024, you can claim this credit on your tax return or transfer it to a dealership, which can reduce your vehicle’s purchase price upfront.
• Income limits and vehicle requirements: To qualify, your income must be below set limits and the vehicle must meet certain specifications, including a price cap and battery capacity standards.

The EV Tax Credit: How Much You Can Get

The amount of the tax credit can vary depending on different factors. Generally, you can either get a partial credit of $3,750 for a new electric vehicle purchase, the full $7,500 credit or $4,000 for a used EV tax credit.

It’s a one-time credit, meaning you can only get it when you buy a new electric car. Recently, due to a rule change last year, you can now either apply for the full $7,500 credit when you file for taxes or apply it as a discount at participating car dealerships. This is a great option to have a chunk taken off at the point of sale if you’re in the market to buy and want to save on some tax paperwork.

For used EV purchases, you can claim up to a $4,000 credit if you meet these conditions:

• You meet the income threshold qualification.
• You bought an EV that is at least two years older than the current calendar year.
• Are the first title transfer from the original owner (that bought from a dealer).

Step-by-Step Guide To Claiming the EV Tax Credit

Claiming the EV tax credit is usually straightforward. Here’s a quick guide:

• Verify eligibility: Confirm that your EV model qualifies for the credit. Also, check your income eligibility and other requirements.
• Save your sales documentation: Keep a copy of your sales receipt or a document from your car dealership as proof of purchase.
• Fill out Form 8936: Download and complete IRS Form 8936, the Qualified Plug-in Electric Drive Motor Vehicle Credit form. You’ll need to provide vehicle details, including the Vehicle Identification Number.
• Submit your form with your tax return: Attach Form 8936 to your federal tax return when you file your taxes.
• Optional point-of-sale discount: If eligible, you may also choose to apply the credit at the dealership when purchasing the vehicle, which could reduce the car’s price upfront.

Does Your Car Qualify for the EV Tax Credit?

Whether or not you qualify for the EV tax credit will depend on several factors, including the vehicle’s MSRP, its final assembly location, battery component and critical minerals sourcing, and your modified adjusted gross income. Not everyone who buys an electric car can get the tax credit. There are certain requirements you need to meet.

Here are some key points:

• Make and model: Only certain electric vehicles qualify for the tax credit. Not all electric cars are eligible. The full list of approved vehicles can be found at FuelEconomy.gov.
• Vehicle cost: To qualify for the EV tax credit, your vehicle must be below a certain price. This maximum MSRP varies by vehicle.
• Battery minerals and components: For vehicles placed in service after April 17, 2023, to receive the second half of the EV credit ($3,500), the battery for the vehicle must meet the critical mineral and battery components requirements.
• Battery capacity: For vehicles placed in service from Jan. 1 until April 17, 2023, the size of the EV’s battery also matters. There’s a base $2,500 credit, plus $417 for cars with a 7 kilowatt capacity or higher, and $417 for every kilowatt over 5 total kilowatts.
• Income limits: There are income limits for both new and used EV tax credits.
  • For new EVs, your AGI must be below $300,000 for married filing jointly, $225,000 for head of household and $150,000 for all others.
  • For used EVs, your AGI must be below $150,000 for married filing jointly, $112,500 for head of household and $75,000 for all others.
• New purchase: The full tax credit is only available for new electric car purchases, not used ones. However, some pre-owned vehicles purchased in 2023 or after are eligible for a tax credit of up to $4,000.

Critical Mineral and Battery Requirements

In 2023, the IRS introduced new rules to determine eligibility for the EV tax credit based on where the critical minerals in the battery are soured and where the battery components are made.

To qualify for the full credit, EV batteries must meet specific sourcing standards:

• Critical minerals: A portion of the battery’s critical minerals must come from the U.S. or a country with a free trade agreement with the U.S.
• Battery components: The battery’s main components must also be manufactured in the U.S. or in countries with a trade agreement.

Meeting one of these requirements qualifies the vehicle for a partial credit of $3,750, while meeting both qualifies for the full $7,500.

These requirements will continue to become more stringent in the coming years, so it’s a good idea to check with your dealer to confirm if a specific vehicle meets the necessary standards.

Qualifying EVs

Here are EV models that qualify for the EV tax credit:

Final Take To GO 

If you’re thinking about buying an electric vehicle, be sure to look into the EV tax credit. It could help you save money on your purchase, especially if you might be in a higher tax bracket with a larger tax liability. Just remember to check if the car you want qualifies for the credit, and make sure you meet all the requirements. With the right information, you can take advantage of this benefit and enjoy the perks of driving an electric car while saving some cash.

Takeaway

Finding and working with a financial advisor is a great idea. A financial advisor will help keep track of your finances and assist you in attaining your financial goals. While finding the right one can be overwhelming, you can decide to work with a financial advisor in your community or a virtual one.

Get to know your financial advisor options today for free!

Caitlyn Moorhead and Elizabeth Constantineau contributed to the reporting for this article.

Data is accurate as of Nov. 5, 2024, and is subject to change.

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