The EV Tax Credit forms part of the Inflation Reduction Act (IRA) signed into law in 2022 and aims to incentivize consumers and businesses alike to purchase EVs and energy-efficient home improvements.
At A Glance:
1️⃣ The EV Tax credit offers up to $7500 for new EVs.
2️⃣ It also provides up to $4000 on used EVs.
3️⃣ The Tax credit applies to any clean vehicle, including FCEVs (Fuel Cell Electric Vehicles) and PHEVs (Plug-in Hybrid Electric Vehicles), as well as some commercial vehicles and SUVs.
4️⃣ From 2024, consumers could pass the credit back to the dealer and lower the purchase cost instead of claiming a tax credit.
Now let’s have a deeper dive into the details of the electric vehicle tax credit by looking at everything from sourcing requirements to income eligibility.
What Is The EV Tax Credit?
The Federal EV tax credit is a non-refundable tax credit applied to purchase new or used eligible EVs. It is claimable in the year of purchase and is a once-off credit applied to the vehicle, meaning that the new owner cannot claim the credit should the car be sold.
The criteria for eligibility include whether you own the EV, the weight of the EV, and how many vehicles the manufacturer has sold; plus, there are price limits on new and used EVs, as well as income thresholds above which the credit may not be claimed.
For new EVs, the price may not exceed $55,000; for SUVs, pickup trucks, and vans, that price may not exceed $80,000.
For used EVs, there is a fixed price ceiling of $25,000 regardless of the vehicle, and the maximum credit can only be 30% of the value or $4000, whichever is less.
Once the credit on a used EV has been taken, a buyer is not eligible for another credit for three years, and businesses may not claim the tax credit for used EVs.
The IRA has amended the credit to include new manufacturing requirements, expanded vehicle eligibility, and additional income thresholds to extend the credit until 2032.
What Are The Income Limits For Eligibility?
There are limits on both new and used vehicles based on the modified adjusted gross income or MAGI, allowing certain deductions for the preceding or current tax year.
|For new vehicles purchased||For used electric vehicles|
For an individual or any other filing status – the MAGI may not exceed $150 000
The individual MAGI may not exceed $75 000
For the head of household, the limit is $225 000
The head of the household limit is $112500
|For joint filing or surviving spouse, the limit is $300 000|
For joint filing, the limit is $150 000
The strategy here benefits lower, or middle-income earners looking to buy either new or used EVs, while high-end earners would not benefit from the tax credit.
What Are The Eligibility Criteria For Vehicles For US Supply And Production?
As much as the EV tax credit is aimed at consumers, part of this initiative also seeks to retain US manufacturing, recycling, and assembly of EVs; as such, the following criteria apply:
The vehicle’s final assembly must be done in North America, including Canada and Mexico, and this will apply until 2032.
From March 2023, the $7500 credit amount is split into two components based on the percentage of the critical battery minerals and components that are either recycled or made/ processed there or in any country with a free trade agreement.
The entire $3750 on battery minerals is claimable, where 40% has been recycled/made/processed in the USA or a qualifying country. This will increase by 10% annually until 2027, when the critical minerals must comprise 80% from the USA or qualifying partners.
From March 2023, at least 50% of the battery’s components must be assembled or made in the US or any country with a free-trade agreement. This will increase to 100% by the year 2029.
Before the March 2023 Treasury Department update, the battery source will not affect the tax credit, provided the assembly criteria are met.
Blacklisted countries, including China, Russia, and North Korea, may not be involved with the supply of components or materials.
How The EV Tax Credit Can Benefit EV Owners
From 2024 the tax credit is essentially $7500 back in your pocket from the government and should not be confused with a tax write-off.
The write-off is calculated before tax, so it’s only a tax deduction, while a tax credit is just pure cash back. So whether you take it yourself or hand it back to the dealer, you still get the $7500 credit.
Aside from the Federal tax credit, there could also be state credits and incentives that provide more relief.
In California, for example, the Clean Fuel Rewards program offers a $750 rebate on purchasing or leasing a new EV which, along with the tax credit, would increase the overall credit to more than $8000.
For example, if you buy a new EV for $55000, you would only pay $47500, and an $80000 electric SUV would only cost $72500, reducing your monthly installments proportionally, and the same principle would apply to used EVs.
Along with lower fuel and maintenance costs, the tax credit means more in your pocket every month for the life of the EV, and added to that; you would also be able to claim credit for installing an EV charger at home.
Tax Credits For EV Chargers At Home
If you want to install a home EV charging station, you can claim up to $1000 or 30% of the cost, whichever is smaller.
For businesses, that increases to $100 000 or 30% per EV Charger under the IRA, and to do this, you would use IRS Form 8911 submitted along with your income tax documents the following year.
Similar to the EV tax credit, some states offer additional incentives for installing EV charging equipment, and checking out the list of states and their incentives could save you even more money.
The credit covers most chargers, including bidirectional equipment, which was not covered under the previous incentive.
It will run until 2032, and if you opt to include solar panels, you will be eligible for additional tax credits of up to 30% of the total cost.
All being said and done, investing in an EV, a home charger, and solar panels could lessen your tax burden considerably. Seek advice from a tax professional before committing.
📖 Read Next: The Federal EV Charger Tax Credit Explained
How To Claim The EV Tax Credit
To claim your tax credit, you must complete IRS form 8936 and submit that along with your tax return to the Federal Government.
This would apply if you bought the EV in 2022, and the same form can be used for purchases in the current tax year.
If you use a tax consultant or tax software, you will be guided through the process and can claim the credit at the end of the tax year.
From 2024, the wait between the tax year end and the credit can be eliminated if you transfer the credit to the dealer during the purchase and gain a discount on the vehicle’s price.
1️⃣ The IRS extended the EV Tax credit to 31 December 2032.
2️⃣ The EV tax credit for new EVs is capped at $7500 and $4000 for used EVs.
3️⃣ The total MSRP for tax credit eligibility is $55000 on EVs and $80 000 on SUVs, pickups, and vans.
4️⃣ MAGI limits are in effect for new and used EVs, so you must check whether you qualify.
5️⃣ From March 2023, the $7500 EV tax credit will be evenly split according to the origin and processing of critical battery minerals and components and only paid for qualifying vehicles.
6️⃣ EV owners can secure additional tax credits of 30% or $1000 by installing home chargers, and up to 30% of the solar panels cost.
7️⃣ Businesses can claim up to $100 000 per EV charger installation.
The recent Tesla price reductions have created a flurry of interest to claim the full tax credit. If you think that you may be eligible, then speak with a tax advisor to begin the process.
You may also be pleased to find you qualify for state and local tax incentives. Find out more in the resources below:
Incentive Schemes By State:
Arizona’s EV Incentives
California’s EV Incentives & Rebates
Colorado’s EV Incentives
Florida’s EV Incentives & Rebates
Illinois’ EV Incentives & Rebates
Indiana’s EV Incentives
Massachusetts EV Rebate
Maryland EV Tax Credit
Michigan’s EV Incentives
Minnesota EV Tax Credit
Nevada’s EV Incentives & Rebates
New York’s EV Incentives
North Carolina’s EV Incentives & Rebates
Ohio’s EV Incentives & Rebates
Texas’ EV Incentives
Utah’s EV Incentives
Washington State’s EV Incentives
Wisconsin EV Tax Credits