How To Apply for Electric Vehicle Tax Credit

As of 2023, buyers of new electric vehicles may be eligible for tax credits worth up to $7,500, and owners of used electric vehicles could receive tax savings worth up to $4,000.

The EV tax credit was updated and enlarged by the Inflation Reduction Act of 2022, making purchasers of vehicles until 2032 eligible for these benefits. Consumers may have some difficulties once the reforms take effect this year.

By April 2023, new manufacturing requirements for electric vehicles must be met. These requirements state that batteries and essential minerals must come at least partially from the United States. Along with these adjustments, price ceilings and income criteria must also be taken into consideration.

While the most recent regulations may make it more difficult for you to choose an EV tax credit option, the program as a whole is anticipated to see an increase in the number of people who use the benefit over time. Credit may save taxpayers up to $950 annually, according to a White House assessment.

What you need to know about the federal tax incentives for electric vehicles is provided here, along with an outline of the legislation's provisions and a list of vehicles that the IRS says may be eligible for the new credit.

Who Qualifies for an Electric Vehicle Tax Credit?

If you purchase a new, qualified plug-in electric car (EV) or fuel cell electric vehicle (FCV), you may be eligible for a credit of up to $7,500 under the Internal Revenue Code Section 30D. The Inflation Reduction Act of 2022 modified the terms of this credit for vehicles purchased between 2023 and 2032.

Both private persons and their businesses are eligible for the credit.

To be eligible, you must:

  1. Not purchase it to resell; rather, use it yourself
  2. Make use of it mostly in the US

Your modified adjusted gross income (AGI) cannot, in addition, exceed:

  1. $300,000 when filing jointly by married couples
  2. $225,000 for household heads
  3. $150,000 for every additional filer

Depending on whichever is lesser, you can use your modified AGI from the year you received the receipt of the car or the year before. You may be eligible for the credit if your adjusted AGI falls below the cutoff in one of the two years.

Since the credit is nonrefundable, you cannot use it to offset any tax liabilities. Any excess credit cannot be carried over to a later tax year.

Requirements & Thresholds for Vehicles To Avail EV Tax Credit

Final assembly requirement

The "final assembly" requirement ushered in by the IRA is one significant exception. Clean automobiles must have received their final assembly in North America between August 17, 2022 and December 31, 2022 in order to qualify.

If you've already made an EV purchase or entered into what the IRS refers to as a "binding written contract" to do so before August 16, 2022 and are planning to take ownership of the vehicle at a later time, you probably qualify for the credit without having to satisfy this additional final assembly condition.

However, it's a good idea to double-check with the dealership and a tax expert.

Battery requirement

An amount of the vehicle's battery must be constructed or manufactured in North America in order to qualify for the battery portion of the credit (up to $3,750).

The following percentage thresholds will apply:

  • 2023: 50%
  • 2024: 60%
  • 2025: 60%
  • 2026: 70%
  • 2027: 80%
  • 2028: 90%
  • 2029 through 2032: 100%

Critical minerals requirement

For the remaining $3,750 of the credit, vehicles must satisfy a "critical minerals requirement." This stipulation states that a specific proportion of crucial minerals used to make the battery of the car must be harvested or processed in the United States or in a nation with whom the United States has free-trade agreements.

The following percentage thresholds will apply:

  • 2023: 40%
  • 2024: 50%
  • 2025: 60%
  • 2026: 70%
  • 2027 through 2032: 80%

Vehicles may also stop obtaining battery parts from nations of concern beginning in 2024 (such as China). Additionally, as of 2025, EVs cannot include any essential minerals that come from a problematic foreign nation.

How Is Credit Amount Calculated?

Regardless of the date of purchase, the credit's value is determined by when the vehicle was delivered to you and when you put it into service.

For automobiles put into service between January 1 and April 17, 2023:

  1. Base amount: $2,500
  2. Plus $417 for a vehicle with a battery capacity of at least 7 kilowatt hours
  3. Plus $417 for every additional kilowatt hour of battery capacity
  4. Total up to $7,500

The credit amount for a car with the requisite 7 kilowatt hours of battery capacity is typically $3,751 ($2,500 + 3 times $417).

For automobiles put into service on or after April 18, 2023:

Vehicles must satisfy all of the aforementioned standards as well as new ones for essential minerals and battery components to qualify for a credit of up to:

  1. $3,750 if the vehicle satisfies the vital minerals criterion
  2. $7,500 if it satisfies both requirements
  3. $3,750 if it satisfies the need for battery components only

A vehicle won't be qualified for a credit if it doesn't fulfill either condition.

Vehicles Requirements & Specifications To Qualify for a Tax Credit

For a vehicle to be eligible:

  1. It should have batteries with a minimum capacity of 7 kilowatt hours.
  2. It should weigh less than 14,000 pounds for the gross vehicle weight rating.
  3. It must be produced by an expert manufacturer.
  4. FCVs need not be produced by an approved manufacturer.
  5. Final assembly must take place in North America.
  6. As of April 18, 2023, it must comply with important mineral and battery component standards.

The sale is only eligible if:

  1. You buy the car brand new.
  2. At the time of the sale, the seller reports the necessary information to you and the IRS.

For you to be qualified to claim the credit, sellers must provide your name and taxpayer identification number to the IRS.

Additionally, the manufacturer suggested retail price (MSRP) of the car cannot be greater than:

  1. $80,000 for vans, SUVs, and pickup trucks
  2. $55,000 for extra cars

The manufacturer's suggested retail price (MSRP) of a car includes destination charges but not manufacturer-installed options, accessories, or trim. It isn't always the cost you incur.

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.

EV Rebates & Incentives

Given the emphasis on credits, it's critical to be aware of extra incentives available at the state and local levels. For instance, certain electric vehicles are allowed to use the carpool lane under California's Clean Air Vehicle program. In addition to the federal tax credit, New Yorkers may be qualified for a state-level rebate of up to $2,000 as well.

But before you apply for several incentives, make sure you are aware of any limitations. It's possible that you won't be able to "double-dip" and receive a state rebate on top of a federal one in some states.

List of Plug-in Hybrid Electric Vehicles Eligible for Tax Credit

Make & Model MSRP Limit Full Tax Credit
CHRYSLER
Pacifica Plug-in Hybrid (2022-2023) $80,000 Up to $7,500
FORD
Escape Plug-in Hybrid (2022-2023) $80,000 Up to $3,750
JEEP
Grand Cherokee 4xe (2022-2023) $80,000 Up to $3,750
Wrangler 4xe (2022-2023) $80,000 Up to $3,750
LINCOLN
Aviator Grand Touring (2022-2023) $80,000 Up to $7,500
Corsair Grand Touring (2022-2023) $80,000 Up to $3,750

List of All-Electric Vehicles Eligible for Tax Credit

Make & Model MSRP Limit Tax Credit Amount
CADILLAC (GM)
Lyriq (2023-2024) $80,000 Up to $7,500
CHEVROLET (GM)
Blazer EV (2024) $55,000 Up to $7,500
Bolt EUV (2022-2023) $55,000 Up to $7,500
Bolt EV (2022-2023) $55,000 Up to $7,500
Equinox EV (2024) $55,000 Up to $7,500
Silverado EV (2024) $80,000 Up to $7,500
FORD
F-150 Lightning (2022-2023) $80,000 Up to $7,500
Mustang Mach-E (2022-2023) $80,000 Up to $3,750
E-Transit (2022-2023) $80,000 Up to $3,750
RIVIAN
R1T (2023) $80,000 Up to $3,750
R1S (2023) $80,000 Up to $3,750
TESLA
Model 3 Standard Range RWD/Long Range (2022-2023) $55,000 Up to $3,750
Model 3 Performance (2022-2023) $55,000 Up to $7,500
Model Y AWD/Long Range/Performance (2022- 2023) $80,000 Up to $7,500
VOLKSWAGEN
ID.4 / ID.4 S (2023) $80,000 $7,500
ID.4 Pro/Pro S/Pro S Plus (2023) $80,000 $7,500
ID.4 AWD Pro/AWD Pro S/AWD Pro S Plus (2023) $80,000 $7,500

What Information Is Required From a Seller/Dealership To Claim the Credit?

Make sure you have the necessary paperwork before you drive away from a dealership with a new electric vehicle so you can claim the tax credit. A report providing specific details on the vehicle must be sent to taxpayers by the seller, and it must be given to the taxpayer by the date the vehicle is purchased.

Ensure it includes the following details:

  1. Owner's name and TIN (taxpayer identification number)
  2. Person's name and TIN
  3. Date and amount of the sale
  4. Maximum tax credit that the car qualifies for
  5. VIN, or vehicle identifying number, of the clean car
  6. Battery capacity of the clean car
  7. Confirmation that the taxpayer is the car's original owner
  8. Under penalty of perjury, a statement of declaration from the seller

How To Apply for an EV Tax Credit

Form 8936 & new instructions

Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles) must be submitted with your tax return in order to claim the credit. You must supply the VIN of your car. Use Form 8936 to compute your credit for particular eligible two- or three-wheeled plug-in electric autos.

Find key new rules on Form 8936 claim below:

  1. Qualified plug-in electric drive motor vehicles: For cars put into service after 2022, the credit for eligible plug-in electric drive motor vehicles is unavailable. See _Qualified Plug-in Electric Drive Motor Vehicle_.
  2. New clean vehicles: Vehicles put into operation after 2022 are eligible for the new clean vehicle credit. See _New Clean Vehicle._
  3. Two-wheeled vehicles: For vehicles purchased after 2021, the credit for qualifying two-wheeled plug-in electric vehicles disappeared. However, you might still be able to use the credit for 2022 if you bought the two-wheeled vehicle in 2021 but put it to use in 2022.
  4. New qualified fuel cell motor vehicles: For vehicles put into service after 2022, the credit for these vehicles is now accessible under the credit for new, clean vehicles. Earlier, the Alternative Motor Vehicle Credit Form 8910 permitted a credit for these cars.
  5. Phaseout ending after 2022: Vehicles sold by Toyota, Tesla, and General Motors (GM) after 2022 won't be subject to a credit phaseout.

Wrapping up

According to the government, you can normally only apply for the clean car tax credit for the tax year in which the vehicle was delivered to you, not necessarily the year in which it was purchased.

For example, if you bought a qualified EV in 2023 but didn't receive it until 2024, you'd have to claim the credit on your 2024 taxes (which would be due in 2025). You can claim the tax credit on your 2023 taxes (which you'll submit in 2024), provided that the vehicle you buy in 2023 and have delivered in the same calendar year is a qualified purchase.

Instead of waiting until the following calendar year to claim the credit on their returns, taxpayers may be able to transfer the credit to the dealership in 2024 for a direct discount on the vehicle. In the upcoming months, the IRS is anticipated to provide additional clarification on this credit flexibility.

Although the expansion of the clean vehicle credit is welcome news for taxpayers who want to support the environment, it is still somewhat subtle and complicated, especially given the uncertainty surrounding the new sourcing standards. Consider speaking with a qualified tax professional before you sign the contract if you're unsure of your eligibility or need advice for your unique circumstances.