Are you thinking about getting an electric vehicle (EV) or plug-in hybrid electric vehicle (PHEV)? But you’re not sure about the tax credits? The Inflation Reduction Act of 2022 has changed the rules for federal tax credits on clean vehicles. It’s important to know what you need to qualify1.
- The number of new EVs and PHEVs that can get the federal tax credit will drop by more than half starting January 1, 20241.
- You can get a new credit of up to $4,000 for a qualifying used EV from a dealer, but there are income limits and a sale price cap1.
- The credit depends on the vehicle’s battery capacity. You can get a maximum of $7,500 for plug-in EVs bought in 2022 or earlier2.
- To qualify, the vehicle must weigh less than 14,000 pounds and be made in North America for some models2.
- Income limits and sale price caps also apply to new and used EV tax credits. These vary based on your filing status13.
To get the most savings, it’s key to understand the EV tax credit program well. Learn about the rules and how to calculate the credit. This way, you can make a smart choice and enjoy these great incentives.
What Electric Vehicles Qualify for Tax Credit
The federal government gives tax credits to encourage people to buy eco-friendly cars. These credits are for electric vehicles (EVs)4. To get these credits, electric and plug-in hybrid cars must meet certain standards. These include battery size, total vehicle weight, and what the manufacturer says4.
Types of Eligible Vehicles
You can get up to $7,500 for buying a new, qualified plug-in electric vehicle (EV) or fuel cell electric vehicle (FCV)4. These vehicles must have a battery of at least 7 kilowatt hours and weigh less than 14,000 pounds4. Plug-in hybrids can also get a tax credit, but regular hybrids don’t5.
Battery Capacity Requirements
The credit amount depends on when you buy the vehicle, with credits from $2,500 to $7,5004. To get the full $7,500 credit, the car needs a battery of at least 7 kilowatt hours4. If the battery is smaller, the credit is less, starting at $2,917 for a 5 kilowatt hour battery and going up by $417 for each extra kilowatt hour2.
Gross Vehicle Weight Rating
The car also must weigh less than 14,000 pounds4. This rule helps focus the tax credit on smaller, more efficient cars, not big, heavy ones2.
To get the tax credit, you must buy the car new. The seller must also tell you and the IRS about it at the time of sale4.
The rules for the tax credit might change, so it’s important to know them if you’re thinking of buying an electric car452.
Manufacturer and Assembly Requirements
To get the electric vehicle (EV) tax credit, the car must be made by a qualified manufacturer. It also needs to be fully assembled in North America6. The Clean Vehicle Credit gives up to $7,500 for qualifying clean vehicles until December 20326. But, you need to get the full credit if the battery parts are made or put together in North America6.
Qualified Manufacturers
EVs made in North Korea, China, Russia, or Iran won’t get the tax credit6. By 2022, the US had 230 Hybrid & Electric Vehicle Manufacturing businesses, up 9.4% from 20216. By 2030, North America’s electric vehicle battery capacity will be almost 20 times bigger than in 20216. This means making about 10 to 13 million all-electric vehicles a year by 20306.
Final Assembly Location
New EVs must be fully put together in North America to get the tax credit6. Starting in 2024, clean vehicles can’t have batteries made or put together by a Foreign Entity of Concern (FEOC)6. By 2029, all clean vehicles must have their batteries fully made or assembled in North America6.
The tax credit rules help grow the US electric vehicle industry and cut down on foreign parts6. People can use these incentives to switch to clean, local transportation options67.
Critical Mineral and Battery Component Requirements
The Clean Vehicle Credit replaced the old EV tax credit and has new rules for critical minerals and battery parts. These rules apply to vehicles put into use after April 18, 20238. To get the full $7,500 tax credit, EVs must use a lot of critical minerals from the U.S. or its partners and have batteries made with parts from North America8.
Starting in 2023, EVs need 40% of their critical minerals to come from the U.S. or its partners. This will go up to 80% by 20278. Batteries must have at least 50% of their parts made in North America in 2023, aiming for 100% by 20298. If a vehicle doesn’t meet these standards, it won’t get the federal EV tax credit8.
The Inflation Reduction Act of 2022 made these rules even stricter for the Clean Vehicle Credit9. From 2025, EVs using battery minerals or parts from outside the U.S. won’t get the tax credit9. The IRS has eased these rules until 2027, allowing more battery parts to be imported9.
Remember, to get the tax credit, your adjusted gross income must be below $300,000 if filing jointly, $225,000 if filing as head of household, or $150,000 otherwise810. The tax credit can’t be refunded, so it can only reduce the taxes you owe10.
In summary, the new rules for critical minerals and battery parts aim to boost domestic manufacturing and secure EV production89. These changes will greatly affect which EVs get the full $7,500 tax credit. They will also push the move towards a greener future8.
Income Eligibility for Tax Credit
If you’re thinking about getting an electric vehicle (EV) and want the federal tax credit, you need to know the income rules11. The income limits are pretty high, so many eco-friendly buyers can get the tax incentives.
To get the full $7,500 tax credit, your income can’t go over $150,000 if you’re single, $225,000 if you’re filing for head-of-household, or $300,000 if you’re married and filing together1112. For used EVs, the limits are even higher, up to $75,000 for singles, $112,500 for heads of households, and $150,000 for married couples12.
The EV tax credit is meant to make electric cars more affordable for more people12. With these high income limits, the government wants to push for more people to use eco-friendly cars. This helps move towards a greener future13.
The EV tax credit is a nonrefundable credit, which means it can only reduce your taxes up to zero13. You can’t carry it over to future years13.
When looking at the electric vehicle buyer’s guide and thinking about the EV tax incentives, check your income to make the most of this green car benefit111213.
Credit Amount Calculation
The federal electric vehicle (EV) tax credit can help buyers save money. It’s for those buying electric or plug-in hybrid vehicles14. The amount you get depends on the car’s battery size and your income.
Base Credit Amount
For vehicles bought from January 1 to April 17, 2023, you get a $2,500 credit14. If your car has more than 5 kilowatt hours of battery, you can get an extra $417 for each kilowatt hour. This can increase the credit up to $7,50014.
Battery Capacity Credit
Big battery vehicles get more credit. For every kilowatt hour over 5, you add $417 to the credit, up to $7,50014. So, cars with 7 kilowatt hours or more can get the full $7,500.
But, for vehicles bought after April 18, 2023, the credit changes. It depends on the vehicle meeting certain standards from the Inflation Reduction Act15.
“The federal EV tax credit, known as the Qualified Plug-In Electric Drive Motor Vehicle Credit, can be worth up to $7,500.”14
The EV tax credit has changed a lot, especially with the Inflation Reduction Act of 202215. It’s key to know the latest rules to get the most savings on an eligible vehicle14315.
Purchase Date vs. Delivery Date
The electric vehicle market is always changing. This means the timing of when you buy and get your car can affect your chance to get the Clean Vehicle Credit16. If you agreed to buy a car after December 31, 2021, and before August 16, 2022, but got it after August 16, 2022, you might still qualify for the credit17.
Written Binding Contract
A written binding contract is a deal that is legally strong and doesn’t limit what damages can happen if it’s broken16. This rule helps buyers who wanted an electric car before the new rules came out, but got it after the deadline. They can still get the tax credit under the old rules17.
- If you agreed to buy an electric car before August 16, 2022, and got it on or after that date, you might get the credit based on the old rules.
- Make sure to check your contract and when you got your car to see if you qualify.
Dealing with electric vehicle tax credits can be tricky. But knowing about purchase dates, delivery times, and contracts can help you save more1617.
“The Clean Vehicle Credit applies to electric, fuel cell electric, and plug-in hybrid electric vehicles acquired, delivered, and placed in service after August 16, 2022.”
Manufacturer’s Suggested Retail Price (MSRP) Limits
The electric vehicle (EV) tax credit depends on the vehicle’s MSRP. The18 MSRP caps are set at $80,000 or less for pickup trucks, vans, or SUVs. For other passenger vehicles, it’s $55,000 or less. This limit makes sure the tax credit goes to more affordable, eco-friendly cars. It helps make electric vehicles available to more people within the19 income limits.
The MSRP is the price the manufacturer suggests, including extras and trim but not destination fees19. This cap helps the tax credit focus on budget-friendly EV models. It aims to close the price gap between electric and gas cars. This supports wider EV adoption as part of the electric vehicle buyer’s guide.
The MSRP limits can change as government agencies review and adjust them. This ensures the tax credit supports the electric vehicle market and20 eco-friendly car incentives. As the EV industry grows, these rules might change. This keeps the tax credit program effective and impactful.
| Vehicle Type | MSRP Limit |
|---|---|
| Pickup Trucks, Vans, SUVs | $80,000 or less |
| Other Passenger Vehicles | $55,000 or less |
These MSRP limits help balance supporting eco-friendly cars with reaching more consumers within the20 income limits. This contributes to the growth of the electric vehicle market181920.
How to Claim the Tax Credit
Claiming the electric vehicle (EV) tax credit is easy but requires some steps. You could get up to $7,500 off, based on the car’s battery size21. To get the credit, you must file Form 8936 with your taxes and include your car’s VIN (Vehicle Identification Number)21.
Time-of-Sale Report
After buying an EV, you’ll get a time-of-sale report from the dealer. This report shows the dealer has told the IRS about your purchase21. The dealer must share info with you and the IRS for tax credit claims22.
Filing Form 8936
To claim the credit, fill out Form 8936 with your taxes. You’ll need to give details about your EV, like its VIN21. You must include the VIN and some sale info on Form 893622.
By doing these steps and giving the right info, you can get the EV tax credit. This will give you big savings212223.
| Key Steps to Claim the EV Tax Credit | Details |
|---|---|
| Time-of-Sale Report | The dealer provides a report to the buyer and the IRS confirming the purchase details. |
| File Form 8936 | Buyers must include the vehicle’s VIN and other details when filing this form with their tax return. |
Eligibility for Vehicles Purchased in 2022 or Before
If you bought a new, qualified plug-in electric vehicle (EV) in 2022 or earlier, you might get a tax credit of up to $7,500. This is under the Internal Revenue Code Section 30D24. The credit is $2,917 for a vehicle with a battery of at least 5 kilowatt hours (kWh). Plus, you get an extra $417 for each kWh over 5 kWh, up to a max of $7,50024.
Many car makers offered tax credits for their EV and plug-in hybrid models in the past. For example, American Honda Motor Co., Inc. gave a $3,626 credit for the 2014 Accord Plug-In Hybrid. They also offered a $7,500 credit for the Clarity Plug-In Hybrid from 2018 to 202124. Audi of America, LLC provided $7,500 credits for models like the e-tron GT and Q4 50 e-tron quattro in various years24.
The new EV tax credit rules in 2023 have changed. They have different requirements and amounts compared to before25. Vehicles bought in 2022 or earlier might still get the older $7,500 credit. But, the details and what you need to show might be different26.
If you’re not sure about your eligibility or the credit amount for your 2022 or earlier EV, talk to a tax expert or the IRS25. Knowing about the changing EV tax credit rules can help you save more on your clean vehicle.
State and Local Incentives
Electric vehicle (EV) buyers can get extra savings from state and local incentives, on top of the federal tax credit. Some states offer up to $15,000 in rebates for buying EVs27.
In Colorado, you can get up to $7,500 off new EVs. Maine gives up to $7,500 off EVs, with different amounts based on your income27. Massachusetts offers rebates from $1,000 to $3,500 for new or used EVs27. Maryland gives up to $3,000 off EVs under $50,000 and helps with the cost of installing home chargers27.
Delaware and New York also offer big incentives. Delaware’s rebate can be up to $2,500, and New York gives up to $2,000 off new EVs27. California used to have big EV rebates, and some areas still do, like a $2,000 rebate for customers of Peninsula Clean Energy27.
States with big EV incentives focus on clean energy and improving air quality27. Local governments and utilities often add more incentives for buying EVs27.
New Jersey, Oregon, Texas, Illinois, Washington, and Minnesota are looking at or boosting their EV incentives27.
| State | Incentive Amount | Program Details |
|---|---|---|
| Colorado | Up to $7,500 | Specific price thresholds for full or partial credits |
| Maine | Up to $7,500 | Income-based variations |
| Massachusetts | $1,000 to $3,500 | Rebates for new or used EVs |
| Maryland | Up to $3,000 | Off EVs under $50,000 and discounts on home charger installations |
| Delaware | Up to $2,500 | EV rebate with option to claim at dealership or afterward |
| New York | Up to $2,000 | Off new EV purchases or leases through the Drive Clean Rebate |
| California | Up to $2,000 | Localized rebates, such as $2,000 for Peninsula Clean Energy customers |
With the federal EV tax credit and state and local incentives, drivers could save up to $15,000 on an EV27. These incentives make EVs more affordable and help move to clean transportation27. By using these programs, EV buyers can lower the cost of buying an EV and enjoy the long-term benefits of electric driving27.
“States with generous EV incentives typically prioritize clean energy and air quality improvements.”
Comparing Electric Vehicle Costs to Conventional Vehicles
When looking at electric vehicles (EVs), it’s key to see how they stack up against traditional cars. The Driving Electric Local Fuel Savings Calculator is a great tool for figuring out how much you could save by switching to an EV or plug-in hybrid electric vehicle (PHEV)28.
Recently, the average price for a new EV went down by $14,300 in September 2023, making it only $2,800 more than a new gas car28. Plus, you could get up to $7,500 for a new EV or $4,000 for a used one, thanks to the federal EV tax credit2829.
EV owners also spend about 60% less on fuel each year than gas car drivers28. EVs are 2.6 to 4.8 times more efficient than gas cars, according to the U.S. Department of Energy28. They’re easier to maintain and repair, costing half as much due to features like regenerative braking28.
The savings on fuel over the life of the car can vary by location. For example, EV owners in Washington State could save up to $14,480, while those in Hawaii might pay $2,494 more over 15 years28. A 2024 study showed that EVs can save you $7,000 to $11,000 over seven years28.
For those wanting both gas and electric, a plug-in hybrid with 50 miles of electric range is a good choice. It’s a cost-effective and green option28.
In summary, electric vehicles offer big savings on fuel, maintenance, and taxes. Using the Driving Electric Local Fuel Savings Calculator helps you pick the best, cost-saving, and eco-friendly car282930.
“The future of transportation is electric, and the cost savings can be substantial for those who make the switch.” – Automotive Industry Expert
Conclusion
The federal tax credit for electric vehicles can save you a lot of money. But, figuring out who can get it and how much is tricky31. Now, the tax credit for new electric vehicles is only for those made in North America32. You also need to meet certain income levels, price limits, and battery requirements to qualify.
To get the most savings, know the rules about the type of vehicle, battery size, and where it was made33. For a new electric vehicle with a big enough battery, you can get a tax credit of $2,917. If the battery is even bigger, you get more money, up to a total of $7,50032. Starting January 1, 2023, cars under $55,000 and trucks and SUVs under $80,000 can get the credit.
Keep up with the latest on who can get the credit and how much31. The IRS and Treasury will update you on tax credits, including changes for electric vehicles32. This way, you can make the most of the electric vehicle tax credit.
FAQ
What types of electric vehicles qualify for the tax credit?
What are the battery capacity and gross vehicle weight requirements for eligible vehicles?
What are the manufacturer and assembly requirements for eligible vehicles?
What are the critical mineral and battery component requirements for the full ,500 tax credit?
What are the income eligibility limits for the tax credit?
How is the tax credit amount calculated?
How does the purchase date vs. delivery date affect eligibility?
What are the MSRP limits for eligible vehicles?
How do I claim the tax credit?
What are the eligibility rules for vehicles purchased in 2022 or before?
Are there any state or local incentives available?
How can I compare the costs of driving an electric vehicle to a conventional vehicle?
Source Links
- Which Electric Cars Are Still Eligible for the $7,500 Federal Tax Credit? | Cars.com
- Credits for new electric vehicles purchased in 2022 or before
- Federal Tax Credits for Pre-owned Plug-in Electric and Fuel Cell Vehicles
- Credits for new clean vehicles purchased in 2023 or after
- Electric Cars and Plug-In Hybrids That Qualify for Federal Tax Credits – Consumer Reports
- EV Tax Credit Eligibility Criteria
- How Do Electric Car Tax Credits Work in 2024? – Kelley Blue Book
- Electric Vehicle (EV) and Fuel Cell Electric Vehicle (FCEV) Tax Credit
- Here’s every electric vehicle that currently qualifies for the US federal tax credit in 2024
- Federal Tax Credits for Plug-in Electric and Fuel Cell Electric Vehicles Purchased in 2023 or After
- How the EV Tax Credit Works
- What Is the EV Tax Credit, and Who Qualifies?
- EV Tax Credit 2024: How It Works, What Qualifies – NerdWallet
- Get a Tax Credit for Buying an Electric Vehicle
- How Does the Electric Car Tax Credit Work?
- Electric Vehicles with Final Assembly in North America
- Topic C — Frequently asked questions about when the new requirements apply to the New Clean Vehicle Credit
- New and Used Clean Vehicle Tax Credits
- Frequently Asked Questions about Vehicle Tax Incentives
- What Is the EV Tax Credit, and Who Qualifies?
- Filing Tax Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit
- Tax Credits for Electric Vehicles and Charging Infrastructure
- Electric Vehicle & Energy Incentives | Tesla Support
- Manufacturers and models for new qualified clean vehicles purchased in 2022 and before
- 2022 EV Tax Credits from Inflation Reduction Act – Plug In America
- Electric Vehicle Tax Credits 2024: What You Need to Know | Edmunds
- These 7 States Are Giving You Money to Buy an EV
- Electric vs. Gas Cars: Is It Cheaper to Drive an EV?
- Electric Vehicle Tax Credits: What To Know In 2024 | Bankrate
- Alternative Fuels Data Center: Electric Vehicles
- Frequently Asked Questions on the Inflation Reduction Act’s Initial Changes to the Electric Vehicle Tax Credit
- Understanding the Inflation Reduction Act’s electric vehicle tax credits
- 2022 and 2023 Electric Vehicles Tax Credits
