Which electric vehicles qualify for tax credit? Tax credit

Which electric vehicles qualify for tax credit? As sales of electric vehicles continue to surge, many new and prospective customers have questions about qualifying for federal tax credit on electric vehicles, especially now that a slew of new credits have been reinstated to US consumers (alongside their fair share of confusing and ever-evolving conditions)

Whether you qualify is not a simple yes or no question… well, actually it sort of is, but the amount you may qualify for varies by household due to a number of different factors. Furthermore, new terms implemented January 1, 2023 limit the number of EVs that currently qualify based on a number of factors pertaining to local US manufacturing.

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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. This means the credit can make a sizable dent in your tax bill, but you won’t see any overage back in the form of a tax refund.

The tax benefit, which was recently modified by the Inflation Reduction Act for years 2023 through 2032, allows for a maximum credit of $7,500 for new EVs, and up to $4,000, limited to 30% of the sale price, for used EVs. Taxpayers can only claim one credit per vehicle.

How the 2023 EV tax credit works

To qualify for the new EV tax credit, your income must fall beneath certain thresholds, and the vehicle you intend to purchase must also meet several IRS specifications, including price caps and manufacturing guidelines.

The changes to the clean vehicle tax credit listed below went into effect in January 2023, with the exception of the critical mineral and battery rules, which began to apply on April 18, 2023.

Used cars now eligible

One of the most contentious issues with the older version of the EV tax credit was its exclusion of used cars. The IRA remedies this. Beginning in 2023, qualifying used EV purchases can fetch taxpayers a credit of up to $4,000, limited to 30% of the car’s 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.

Price cap

As of 2023, vans, SUVs and pickup trucks must have an MSRP, or manufacturer’s suggested retail price, of $80,000 or under to qualify for the credit. 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.

Income limit

Along with price caps on cars, the new credit also sets limits on the modified adjusted gross income that taxpayers can make in order to qualify.

Per the IRS, you can use your MAGI from either the year the car is delivered or the year before delivery. 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.

Final assembly requirements

To be eligible for the new credit, vehicles must have had final assembly in North America. You can reference the National Highway Traffic Safety Administration’s VIN, or vehicle identification number, database to check out a car’s final assembly details.

Credit flexibility

Beginning in 2024, taxpayers will have the option to transfer the credit to the dealer at the point of sale to directly lower the price of the vehicle by the corresponding credit amount — this is big news for people who may want to invest in an EV but have been dissuaded by high sticker prices.

You can expect further guidance on how the transfer of the credit will work from the IRS and the Department of Treasury in the coming months.

How the electric vehicle tax credit is calculated

The new tax credit, worth up to $7,500, is made up 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.[2] This rule also applies to cars that were purchased earlier in the year but were not delivered until April 18 or later.

Jump below to see how the credit is calculated for clean vehicles delivered April 17, 2023, or earlier.

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

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

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 whom the U.S. has a free-trade agreement. The percentage thresholds will be as follows:

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

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.

Which electric vehicles qualify for tax credit?

The IRS says the manufacturers of the following EVs and PHEVs indicated that they’re currently eligible for a full tax credit of $7,500 provided other requirements are met, such as vehicle MSRP and buyer income, which are explained in detail later in this article:

Cadillac Lyriq (2023 and 2024 model years, MSRP $80,000 or below)
Chevrolet Bolt (2022 and 2023 model years, MSRP $55,000 or below)
Chevrolet Bolt EUV (2022 and 2023 model years, MSRP $55,000 or below)
Chevrolet Blazer (2024 model year, MSRP $80,000 or below)
Chevrolet Equinox (2024 model year, MSRP $80,000 or below)
Chevrolet Silverado EV (2024 model year, MSRP $80,000 or below)
Chrysler Pacifica PHEV (2022, 2023, and 2024 model years, MSRP $80,000 or below)
Ford F-150 Lightning (2022 and 2023 model years, MSRP $80,000 or below)
Lincoln Aviator Grand Touring PHEV (MSRP $80,000 or below)
Tesla Model 3 Performance only (2022 and 2023 model years, MSRP $55,000 or below)
Tesla Model Y All-Wheel Drive, Long Range, and Performance (2022 and 2023 model years for All-Wheel Drive and Long Range, 2022 model year only for Performance, MSRP $80,000 or below)
Volkswagen ID.4 (2023 model year, MSRP $80,000 or below)

Many of these vehicles may also qualify for state and local incentives. You can find out more here, at CR’s EV incentive finder. Not all of these vehicles are currently on sale.

If a manufacturer uses different suppliers or assembly locations, some vehicles may qualify while others may not, even if they’re the same exact make and model. That’s the case for the Tesla Model 3, which qualifies for either a full or partial tax credit depending on how it’s equipped.

Other vehicles may qualify in the future after automakers make changes to their battery and component suppliers, or if the U.S. signs free-trade agreements with more countries.

How do you claim the EV tax credit?

According to the IRS, you must file Form 8936, “Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles)” with your tax return. You will also need to provide your vehicle identification number (VIN), which can be found on the registration or on the dashboard at the base of the windshield.

Starting in 2024, the process will get easier. Buyers will be able to transfer their credit to a car dealership at the time of purchase, which will work sort of like an instant discount on the price of the vehicle.

Why does the EV tax credit keep changing?

The Treasury Department says that the new rules are aimed at moving EV manufacturing and sourcing away from China and to the U.S. and its free-trade partners, which are Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, South Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru, and Singapore.

They also now include Japan, after it entered into a special minerals-focused trade agreement with the U.S., signed just before the new rules were released, and may expand to include countries in the European Union as well, Reuters reports.

A 2022 analysis of the EV supply chain from the International Energy Agency shows that a vast majority of minerals, components, and battery cells are currently from China.

Although directives about battery and mineral sourcing are meant to provide an incentive for manufacturing in the U.S., automakers and EV advocates have told Consumer Reports they’re concerned that the complexity of these rules may make it difficult for consumers to find a vehicle that qualifies for the credits or understand how much they’ll be eligible to claim.

Chris Harto, CR’s senior policy analyst for transportation and energy, says it’s no surprise that fewer cars qualify for a credit. “The requirements were going to be difficult for automakers to meet immediately,” he says, “but we expect this list to grow quite a bit in the coming months and years as automakers now have clear targets to hit to become eligible, and are working hard to qualify.”

How do you know if the car you want qualifies for the ev tax credit?

Buyers who are interested in the tax credit must do some research to see if the specific vehicle they’re considering qualifies. The IRS has a list of vehicle makes and models that automakers have certified as potentially qualifying for a credit, under penalty of perjury. There’s also a list at fueleconomy.gov.

CR’s EV Incentive Finder can also tell you whether the model you’re interested in may be eligible for a federal tax credit, as well as state and local incentives that might save you thousands more.

GM launched a website where people interested in buying a new EV from GM can see how much of a tax credit—if any—it’s eligible for. And the White House says that Google plans to create a search tool for EV tax credit eligibility as well.

Things may get easier in 2024. That’s when qualified dealerships will be able to offer the tax credit directly to buyers at the point of sale, so buyers won’t have to wait to claim the credit on their taxes. Until that provision goes into effect, buyers who don’t have a tax liability may be able to benefit from the tax credit on a lease.

FAQs

Do all electric vehicles qualify for a tax credit?

Yes. Under the new terms in the Inflation reduction act, the MSRP of electric vehicle must be $80,000 or less for SUVs, vans, and trucks. MSRPs for all other electric vehicles must be $55,000 or less.

Which EVs don’t qualify for federal tax credit?

The vehicles that no longer qualify are the electric 2023 Audi Q5 e Quattro Plug-in Hybrid, the 2021–23 BMW 330e Plug-in Hybrid, the 2021–23 BMW X5 xDrive45e Plug-in Hybrid, the 2023–24 Genesis GV70, the 2021–23 Nissan Leaf, the 2022–23 Rivian R1S, the 2022–23 Rivian R1T, the 2023 Volkswagen ID.

Do hybrid vehicles get tax credits?

Some all-electric and plug-in hybrid vehicles qualify for a $2,500 to $7,500 federal tax credit.

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