Who qualifies for 7 500 EV rebate

EV Tax Credit 2024: Rules and Qualifications for Electric Vehicle Purchases

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.

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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 April 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

Price cap

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].

EV tax credit income limits

New EVs

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

• Head of household: $225,000.

• Married filing jointly: $300,000.

Used EVs

• 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]. This means if your income exceeded the threshold one year, but was below the cap during the other year, you may still be able to snag a credit.

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.

Final assembly requirements

To be eligible for the credit, vehicles must have had final assembly in North America. You can reference the National Highway Traffic Safety Administrations VIN, or vehicle identification number, database to check out a cars 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 cars 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].

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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].

To be eligible for the battery portion of the credit (up to $3,750), a certain percentage of the vehicles battery must be assembled or manufactured within North America. The percentage thresholds will be as follows:

Critical minerals requirement

Cars must meet a "critical minerals requirement" to receive the remaining $3,750 portion of the credit. This requirement stipulates that a certain percentage of critical minerals in the car's battery must be extracted or processed within the U.S. or within a country with which the U.S. has a free-trade agreement. The percentage thresholds will be as follows:

Beginning in 2024, vehicles may also not source battery parts from a foreign country of concern (e.g., China). And starting in 2025, EVs cannot contain any critical minerals sourced from a foreign country of concern.

How to claim the federal EV tax credit

Claiming the clean vehicle tax credit on your taxes

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]. This means, for example, that if you bought a qualifying EV in 2023 but won't receive it until 2024, you must claim the credit on your 2024 tax return (filed in 2025).

Transferring the EV tax credit to a dealer

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, youll 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, youll 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 youll need to claim the credit or report the purchase on your taxes.

If youre claiming the credit on your tax return

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 vehicles purchase. Make sure it includes the following:

If youre transferring the credit to the dealer

If youre 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, its important to know about additional incentives on the state and local levels. Californias 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 youre 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 cant 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]. The commercial credit is far less restrictive than the clean vehicle credit currently available to individual taxpayers. It allows businesses to claim tax breaks for a wider range of eligible electric vehicles, including ones that were not manufactured in the U.S.^[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, doesnt mean it will. Dealers arent 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 youre 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 youre 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.

Federal Tax Credits for Plug-in Electric and Fuel Cell Electric Vehicles Purchased in 2023 or After

Who Qualifies

The credit is available to individuals and their businesses.

To qualify, you must:

• Buy it for your own use, not for resale
• Use it primarily in the U.S.

In addition, your modified adjusted gross income (AGI) may not exceed:

• $300,000 for married couples filing jointly
• $225,000 for heads of households
• $150,000 for all other filers

You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your modified AGI is below the threshold in one of the two years, you can claim the credit. Your modified AGI is the amount from line 11 of your Form 1040 plus:

• Any amount on line 45 or line 50 of Form 2555, Foreign Earned Income.
• Any amount excluded from gross income because it was received from sources in Puerto Rico or American Samoa.

The credit is nonrefundable, so you can't get back more on the credit than you owe in taxes. You can't apply any excess credit to future tax years.

Qualified Vehicles

General Requirements

To qualify, a vehicle must:

• Have a battery capacity of at least 7 kilowatt hours
• Have a gross vehicle weight rating of less than 14,000 pounds
• Be made by a qualified manufacturer. Note that fuel cell vehicles do not need to be made by a qualified manufacturer to be eligible. See Rev. Proc. 2022-42 for more detailed guidance.

Vehicles on this list will meet the above three requirements.

The sale qualifies only if:

• You buy the vehicle new. New means it hasn't previously been purchased, registered, titled, or used for any purpose.
• The seller reports required information to you at the time of sale and to the IRS. Sellers are required to report your name and taxpayer identification number to the IRS for you to be eligible to claim the credit.

For vehicles placed in service on or after January 1, 2024, the dealer must be registered with IRS Energy Credits Online, and the vehicle must be approved through Energy Credits Online at the time of sale.

Final Assembly Requirement

The vehicle must undergo final assembly in North America.

You can find your vehicle's weight, battery capacity, final assembly location (listed as final assembly point) and VIN on the vehicle's window sticker.

To check online if a specific vehicle meets the requirements for final assembly location, go to the Department of Energy's page on Electric Vehicles with Final Assembly in North America and use the VIN Decoder tool under "Specific Assembly Location Based on VIN."

Critical Minerals and Battery Component Requirements

For vehicles placed in service (delivered to the consumer) on or after April 18, 2023, the credit amount will depend on the vehicle meeting the critical minerals sourcing and/or battery components sourcing requirements. A vehicle meeting both sourcing requirements may be eligible for the full $7,500 credit, and a vehicle meeting only one of these sourcing requirements may be eligible for a credit of $3,750. A vehicle meeting neither requirement will not be eligible for a credit.

In some instances, you may need to check with your dealer regarding the eligibility of and credit amount for a specific vehicle.

MSRP Requirement

The vehicle's manufacturer suggested retail price (MSRP) can't exceed:

• $80,000 for vans, sport utility vehicles and pickup trucks
• $55,000 for other vehicles

The MSRP is the base retail price suggested by the manufacturer, plus the retail price suggested by the manufacturer for each accessory or item of optional equipment physically attached to the vehicle at the time of delivery to the dealer. It does not include destination charges, the cost of optional items added by the dealer, or taxes and fees. In addition, manufacturer/dealer incentives and trade-ins do not affect MSRP.

See New Clean Vehicle Tax Credit Checklist: How to qualify for the New Clean Vehicle Tax Credit.