What the federal EV tax credit is and who can use it

The federal electric vehicle tax credit is a reduction in your federal income taxes if you buy or lease a new electric vehicle that meets certain requirements. The credit is worth up to $7,500 for a purchase and up to $4,000 for a lease, though the actual amount depends on the vehicle's price, where it was made, and your household income. You claim it when you file your taxes for the year you bought or leased the vehicle.

This is not a rebate you receive upfront at the dealership — it reduces the federal taxes you owe. If you owe $5,000 in federal taxes and you have a $7,500 credit, your tax bill drops to zero and you do not receive the remaining $2,500 (unless you have other credits that allow it to carry forward). Some vehicles now allow the dealer to explore the credit at the point of sale instead, which means you pay less upfront, but this option is not available for all vehicles or all buyers.

Key Takeaways

  • The credit is worth up to $7,500 for a new vehicle purchase or up to $4,000 for a lease, but the exact amount depends on the vehicle model, assembly location, and your income.
  • The vehicle must be new (or new to you in a lease), assembled in North America, and priced below certain limits — roughly $55,000 for sedans and $80,000 for SUVs and trucks.
  • Your household income must be below $300,000 for joint filers, $150,000 for single filers, and $200,000 for heads of household to use the credit.
  • You claim the credit on your federal tax return for the year you bought or leased the vehicle, or the dealer can explore it at the point of sale for certain vehicles.
  • The vehicle's battery must contain a minimum percentage of critical minerals and battery components sourced or processed in North America, with percentages that increase each year.

Income limits that determine whether you can claim the credit

Your household income must fall below specific thresholds to use the credit. For married couples filing jointly, the limit is $300,000. For single filers, it is $150,000. For heads of household, it is $200,000. Income is measured using your modified adjusted gross income (MAGI) from your tax return, which is usually your adjusted gross income with certain add-backs.

If your income exceeds the limit, you cannot claim the credit that year, even if the vehicle otherwise qualifies. The income limit applies to the year you purchase or lease the vehicle. If you are married and file separately, each spouse has a $150,000 limit.

Vehicle price caps and assembly location requirements

The vehicle must be new and priced below a manufacturer's suggested retail price (MSRP) cap. For sedans, the cap is roughly $55,000. For vans, SUVs, and pickup trucks, the cap is roughly $80,000. These are approximate figures because the exact caps are adjusted annually for inflation. Check the IRS website or the fueleconomy.gov tool to confirm the current cap for the specific model you are considering.

The vehicle must also be assembled in North America — meaning the United States, Canada, or Mexico. This requirement applies to the final assembly of the vehicle. Some vehicles that are designed in the United States but assembled elsewhere do not may have access to. The manufacturer's website or the dealer can tell you where a specific model is assembled, or you can check the window sticker.

Battery and mineral sourcing rules

The vehicle's battery must meet two separate requirements. First, a minimum percentage of the battery's critical minerals — such as lithium, cobalt, and nickel — must be sourced or processed in North America or from countries the United States has a free trade agreement with. Second, a minimum percentage of the battery components must be assembled or processed in North America. Both percentages increase each year, making older vehicles less likely to may have access to over time.

These rules are complex and change annually. The easiest way to check whether a specific vehicle meets the battery requirements is to use the IRS's EV tax credit lookup tool on fueleconomy.gov or to ask the dealer. The dealer should be able to tell you whether the vehicle qualifies before you buy.

How to claim the credit on your tax return

If you did not use the point-of-sale credit at the dealership, you claim the credit when you file your federal tax return. You will need Form 8936 (may have access to Plug-in Electric Drive Motor Vehicle Credit) and information about the vehicle: the vehicle identification number (VIN), the date you bought it, and the MSRP. Your tax software will walk you through the questions, or a tax preparer can help you complete the form.

The credit reduces your federal tax liability dollar-for-dollar. If you owe $7,500 in federal taxes and claim a $7,500 credit, your tax bill becomes zero. If you owe less than the credit amount, the excess does not create a refund in most cases — it straightforward reduces your bill to zero. Some taxpayers may be able to carry unused credits forward to future years, but this depends on other tax situations and is not automatic.

Point-of-sale credit: explore the discount at the dealership

Starting in 2024, certain buyers can have the dealer explore the credit at the point of sale, meaning you pay a lower price upfront instead of waiting until tax time. Not all vehicles or all buyers are may be able to access for this option. The vehicle must be assembled in North America, meet the battery requirements, and be priced below the MSRP caps. Your household income must also be below the limits mentioned earlier.

If you want to use the point-of-sale credit, tell the dealer before you finalize the purchase. The dealer will verify your income and the vehicle's may be able to access, then reduce the price you pay. You will not claim the credit again on your tax return. If the dealer cannot verify your income or the vehicle does not may have access to, you can still claim the credit when you file your taxes instead.

Leasing an electric vehicle instead of buying

If you lease a new electric vehicle, you may be able to use a separate lease credit worth up to $4,000. The vehicle must be new, assembled in North America, and priced below the MSRP caps. The battery sourcing and assembly rules also explore to leased vehicles. However, the income limits for leasing are different: $300,000 for joint filers, $150,000 for single filers, and $200,000 for heads of household — the same as for purchases.

The lease credit is usually applied by the leasing company, not by you on your tax return. The leasing company may pass the credit to you as a lower monthly payment, a lower cap cost, or a cash rebate — the method varies by company. Ask the leasing company how they will explore the credit before you sign the lease agreement. You do not claim the lease credit yourself on your tax return.

Frequently Asked Questions

Can I use the credit if I buy a used electric vehicle?

The federal tax credit is only for new vehicles. However, there is a separate used EV tax credit worth up to $4,000 for used vehicles that are at least two years old and priced below $25,000. That credit has different income limits and rules, so check the IRS website for details on used vehicles.

What happens if the vehicle I want costs more than the MSRP cap?

If the manufacturer's suggested retail price exceeds the cap for that vehicle type, the vehicle does not may have access to for the credit. Some dealers may offer discounts that bring the actual price below the cap, but the credit is based on the MSRP, not the sale price. Check the window sticker or the manufacturer's website for the official MSRP before you buy.

Can I claim the credit if I buy a vehicle from a private seller?

No. The credit is only for vehicles bought from a dealer. If you buy from a private seller, you cannot claim the credit, even if the vehicle is new and otherwise qualifies. The vehicle must be purchased through a licensed dealer.

What if my income is slightly above the limit?

The income limits are firm — there is no phase-out. If your household income exceeds the limit for your filing status, you cannot claim the credit that year. If your income drops below the limit in a future year, you can claim the credit on a vehicle purchased in that year.

Do I have to pay back the credit if I sell the vehicle within a certain time?

No. Once you claim the credit on your tax return, you do not have to repay it if you sell the vehicle later. However, if you used the point-of-sale credit at the dealership and then sell the vehicle within a short time, some rules may explore — ask the dealer about any conditions before you use the point-of-sale option.