A Complete Guide to the EV Tax Credit

The EV tax credit is designed to make the purchase of green vehicles more attainable by helping to offset some of the cost. It is not a rebate and it will not put extra cash in your pocket. However you can use it to offset some of your income at tax time and it can reduce how much you owe allowing you to keep more of your money.

Recent changes to the federal EV tax credit have implemented some changes. The Inflation Reduction Act of August 2022 has extended the tax credit for nine years. This will allow qualifying taxpayers to take advantage of the credit on green vehicles purchased up until 2032.

Most of the changes went into effect in January of 2023. Taxpayers can claim one credit per eligible vehicle under the new criteria. Some components of the new EV tax credit were delayed until later in the year causing some confusion. We’re here to help navigate through the new regulations.

How Much Can You Claim From The EV Tax Credit?

The EV tax credit can be claimed only once per eligible vehicle. Drivers must purchase the vehicle because leased cars will not be eligible. The credit can be claimed only once every three years.

In order to claim the EV tax credit vehicles and buyers need to meet eligibility requirements. Qualified buyers can claim from $2500 up to $7500 on brand new vehicles purchased between 2023 and 2032. Half of the credit is dependent on meeting the battery requirements.

One of the most significant changes to the EV tax credit is that used vehicles purchased from a dealership are now eligible too. Taxpayers can claim up to $4000 for previously owned vehicles. This opens up eligibility to a larger number of vehicles and makes it possible for tax payers on a budget to claim the EV tax credit too.

Vehicle Requirements For The EV Tax Credit

One of the most exciting changes to the EV tax credit is the lifting of the manufacturing limits. Under the old requirements credits were linked to manufacturer sales. Once the manufacturer sold 200,000 qualifying vehicles their cars were no longer eligible. As of 2023 these restrictions have been lifted making even the most popular green vehicles eligible for the EV tax credit.

Another change that’s bound to get some attention is the opening of eligibility for previously owned plug-in electric or fuel cell vehicles. Used cars must be purchased from a dealer to qualify for the EV tax credit on their first transfer. They must also be at least 2 years old and cost no more than $25,000.

There are price caps on new vehicles as well. Vans, sport utility vehicles, and pickup trucks must have a manufacturer’s suggested retail price of no more than $80,000 to qualify for the EV tax credit. Passenger cars must be priced at a maximum of $55,000.

Additionally the vehicle must weigh less than 14,000 pounds and it needs to be assembled in North America. Electric vehicles must be made by a qualified manufacturer. This does not extend to fuel cell vehicles where there are no manufacturer restrictions.

Battery Requirements For The EV Tax Credit

The battery plays a significant part in credit eligibility and half of the EV tax credit is dependent on it. The vehicle's battery must be capable of being charged through an external power source. It must also have a capacity of at least 7 kilowatt hours.

The Treasury Department and IRS have proposed a critical mineral component for battery eligibility. Further guidelines are expected to be issued imminently. They will comprise a tiered system which determines the percentage of critical battery minerals that must come from the U.S. or a country that is part of the free trade agreement.

The critical minerals for the battery have to be recycled, extracted, or processed in a qualifying country to be eligible for this portion of the EV tax credit. It is expected that the requirement will begin at 40% in 2023. It will hold at 50% for 2024 and 2025. After that it will increase by 10% each year until 2029 when it will reach 100% and remain there until 2032 when the EV tax credit expires.

As of 2024 further stipulations come into effect which are aimed to reduce dependency on foreign mineral supply. Vehicles who source minerals from a country of concern will not be eligible for the EV tax credit. This currently includes China, Russia, Iran, and North Korea.

Income Eligibility Cap

In order to be eligible for the EV tax credit you must fall below the income eligibility cap. There are different thresholds depending on how you file your taxes. There are also separate caps for new and used vehicles.

The income cap is based on the modified adjusted gross income. You can use your income from the year that you purchase the vehicle or the previous year. Taxpayers are able to claim the credit as long as they are below the threshold for at least one of those years.

For new vehicles the purchase price must not exceed $150,000 for those who file as single, or married couples who choose to file separately. Married couples filing jointly have a cap of $300,000. Heads of household can spend up to $225,000 to be eligible.

Those who file as single, or separately, can spend up to $75,000 on a used vehicle while married couples filing jointly get bumped up to $150,000. The head of a household has a threshold of $112,500 for a used car. Although much lower than the caps for new cars, opening up eligibility to used vehicles will definitely give drivers more options.

Information You Need From A Seller

All taxpayers hoping to claim the EV tax credit must purchase their vehicle from a dealership. Before you leave, make sure that the dealer has given you all of the paperwork you will need to claim the credit. The dealership must give you a report with specific information that you will need for your records.

The report must include the name and taxpayer identification number for both you and the seller. It also needs to show the date of the sales, the sale price, and indicate if the vehicle is new or used. The document must also include the vehicle's identification number, battery capacity, and a verification of the maximum credit that the vehicle qualifies for.

Will you be claiming the EV tax credit? myAutoloan can help you get there.