Did You Purchase an Electric Vehicle in 2023? You May Be Eligible for a $7,500 Tax Credit

By Better Today On Apr 3, 2024

TL/DR –

The 2024 tax season is ending, but there is still an opportunity for US taxpayers to claim a robust EV tax credit of up to $7,500 if they haven’t filed their 2023 tax return yet. The Inflation Reduction Act overhauled this tax break in 2022, and since then, the IRS and Treasury Department have been clarifying the process for claiming the credit. The credit is available for new electric vehicles, with the option to claim it at the point of sale starting in 2024, and it involves meeting certain requirements such as a price cap on qualifying EVs and a ceiling on the adjusted gross income to qualify for the credit.

The 2024 Tax Season and the EV Tax Credit

The 2024 tax season is near its end, and if you’re yet to file your 2023 tax return, the EV tax credit of up to $7,500 is a significant tax credit US taxpayers can claim.

The tax break, providing a credit of up to $7,500 for buying a new electric vehicle, was revised in 2022’s Inflation Reduction Act. The IRS and the Treasury Department have provided clarifications on the use of the credit.

Here’s what you need to know about the modified EV tax credit for 2023, including qualifying cars and how to claim it. If you’re thinking about buying an electric vehicle in 2024, learn how you can claim the credit in 2025.

Requirements for the EV Tax Credit

The Inflation Reduction Act brought significant changes to the tax credit:

There’s a price cap on qualifying EVs. For passenger cars, the MSRP must be $55,000 or less. For vans, SUVs, and light trucks, the cap is $80,000.
From 2024, vehicles containing battery parts from “a foreign entity of concern” won’t be able to claim the credit. For critical minerals, the cutoff is 2025.
The manufacturing cap, which disqualified automakers that have manufactured more than 200,000 EVs, has been removed.
There’s a cap on the adjusted gross income to qualify for the credit.

These changes took effect on Jan. 1, 2023 and will remain in effect until Jan. 1, 2032. Always check the IRS website for updates.

How to Buy an EV in 2024 and Get the Credit at the Same Time

If you’re buying an EV this year, you can get the credit at the point of sale, effectively reducing the vehicle’s purchase price. This way, you don’t have to wait until you file your taxes in 2025 to receive the credit.

Which EVs Qualify for the Tax Credit

The Inflation Reduction Act divided the credit into two parts: you can claim $3,750 if at least half of the value of your vehicle’s battery components are manufactured or assembled in North America. You can claim the other $3,750 if at least 40% of critical minerals are sourced from the US or a trade partner.

Close to 4 dozen are eligible for one or both credits under the new provisions. The list will certainly grow as manufacturers submit updated information and change suppliers. Find the most recent info on FuelEconomy.Gov.

Claiming the EV Tax Credit

To claim the tax break, known as the Qualified Plug-In Electric Drive Motor Vehicle Credit, you will need to file IRS Form 8936with your tax return.

Claiming the Tax Credit on a Used EV

Starting last year, preowned plug-in electric and fuel-cell EVs qualify for a credit of up to 30% of their purchase price, maxing out at $4,000.

Restrictions include:

The used EV tax credit can only be claimed once in a vehicle’s lifetime. Subsequent owners will not be eligible.
The MSRP of the car must be $25,000 or less.
The car must be at least 2 years old. If you bought it in 2023, it must be from model year 2021 or earlier.
Used vehicles purchased before 2023 are not eligible.
The vehicle must have been purchased from a qualified dealer who reports the transaction to the IRS.
The vehicle must meet the requirements for the EV credit.

State-Based EV Tax Incentives?

In addition to the federal EV tax credit, some states offer rebates for clean vehicles. Some can’t be taken along with the federal credit, so be sure to get all the information before claiming anything.

California’s Clean Vehicle Rebate Project offered credits up to $7,500 for the purchase or lease of certain new EVs, plug-in hybrids, and fuel-cell vehicles, but the program expired on Nov. 8, 2023.

Tax Credit for Installing an EV Charger

The Inflation Reduction Act also extended the tax break for residential charging systems through 2032 and made it retroactive to Jan. 1, 2022.

The credit is valued at $1,000, or 30% of the cost of buying or installing the system, whichever is less. The credit also applies to bidirectional charging equipment.

To claim the Alternative Fuel Vehicle Refueling Property Credit, you must file IRS Form 8911.

For more on EVs, find out which models are the best this year and how you can finance a home EV charger.