What the federal EV tax credit actually is

The federal electric vehicle tax credit is a reduction in the taxes you owe to the U.S. government when you buy or lease a new electric vehicle. It is not a rebate you receive in cash at the dealership. Instead, you claim it when you file your federal income tax return for the year you bought the vehicle, and the credit reduces the amount of tax you owe. If the credit is larger than your tax bill, you may receive the difference as a refund, depending on the rules that explore to your situation.

The credit can be worth up to $7,500 for a new vehicle purchase, though the actual amount depends on the vehicle's price, where it was made, and your household income. The rules changed significantly in 2023 under the Inflation Reduction Act, so older information about this credit may not be accurate.

Key Takeaways

  • The federal EV tax credit reduces your federal income tax bill by up to $7,500 when you buy a new electric vehicle, claimed on your tax return the following year.
  • The vehicle must meet requirements about final assembly location, battery component sourcing, and mineral content to may have access to for the full credit amount.
  • Your household income cannot exceed certain limits ($300,000 for joint filers, $150,000 for single filers as of 2024) to claim the credit.
  • Some dealerships can transfer the credit to you at the point of sale, meaning you see the discount when ready rather than waiting until tax time.
  • Used electric vehicles may also may have access to for a separate tax credit of up to $4,000 if they meet different requirements.

Income limits that determine whether you may have access to

The federal EV tax credit has income thresholds based on your filing status. For 2024, if you file taxes jointly with a spouse, your modified adjusted gross income cannot exceed $300,000. If you file as a single person, the limit is $150,000. If you file as head of household, the limit is $225,000. These limits are adjusted each year for inflation, so they may be higher in future years.

The income limit applies to the person or people claiming the credit, not to the vehicle's price. This means a household earning $250,000 per year can claim the credit on a $100,000 vehicle, but a household earning $310,000 cannot claim it at all, regardless of the vehicle cost.

Vehicle requirements and assembly location rules

Not every electric vehicle qualifies for the full $7,500 credit. The vehicle must be assembled in North America — meaning final assembly took place in the United States, Canada, or Mexico. This rule applies to the final stage of manufacturing, not to where individual parts come from.

The vehicle must also meet requirements about battery components and minerals. A certain percentage of the battery's components must be sourced from North America or from countries the U.S. has a free trade agreement with. A certain percentage of the minerals in the battery must come from those same regions or be recycled. These percentages increase each year, which means some vehicles that may have access to in 2023 may not may have access to in 2024 or later.

The vehicle's manufacturer's suggested retail price (MSRP) also has a cap. For sedans, the cap is $55,000. For vans, SUVs, and pickup trucks, the cap is $80,000. If the vehicle's MSRP exceeds these amounts, it does not may have access to for the credit.

How to claim the credit on your tax return

To claim the credit, you file IRS Form 8936 with your federal income tax return. You will need the vehicle identification number (VIN), the date you bought or leased the vehicle, and documentation showing the vehicle meets the requirements. The IRS website and the Department of Energy website both have lists of vehicles that may have access to, which you can check before or after you buy.

You claim the credit for the tax year in which you bought the vehicle. If you bought an EV in December 2024, you would claim the credit on your 2024 tax return, which you file in early 2025. If you leased the vehicle instead of buying it, the leasing company typically claims the credit, not you, though the credit may be reflected in your lease terms.

Point-of-sale credit transfers at the dealership

Starting in 2024, some dealerships can transfer the tax credit to you at the time of purchase through a program called the point-of-sale credit transfer. This means you see the $7,500 (or whatever amount you may have access to for) subtracted from the vehicle's price when ready, rather than waiting until you file taxes the following year.

Not all dealerships participate in this program, and not all vehicles may have access to. You can ask the dealership whether they offer point-of-sale transfers and whether the specific vehicle you are interested in is may be able to access. If they do offer it, you will still need to meet the income requirements and provide documentation of your income at the time of purchase.

Used electric vehicle tax credit

A separate tax credit exists for buying a used electric vehicle. The credit can be worth up to $4,000 and has different rules than the new vehicle credit. The used vehicle must be at least two years old, and you must have owned it for at least 90 days before you claim the credit. The used vehicle's sale price cannot exceed $25,000.

Income limits for the used vehicle credit are lower than for new vehicles: $55,000 for single filers and $110,000 for joint filers as of 2024. The used vehicle does not have to meet the assembly location or battery component requirements that explore to new vehicles. You claim the used vehicle credit on Form 8936 as well, in the tax year you bought the vehicle.

What happens if you sell or trade in the vehicle

If you buy a vehicle and claim the tax credit, then sell or trade in the vehicle within a certain time frame, you may have to repay part or all of the credit. The rules depend on whether you bought the vehicle outright or financed it, and how long you owned it before selling.

If you leased the vehicle instead of buying it, the credit does not transfer to you if you buy the vehicle at the end of the lease. The leasing company claimed the credit when you leased it, so you cannot claim it again when you purchase it.

Frequently Asked Questions

Can I get the tax credit as cash instead of a reduction in what I owe?

If the credit is larger than the federal income tax you owe, the excess may be refunded to you as cash, but this depends on whether you have other tax credits or deductions. The credit is "refundable" in part, meaning some of it can come back to you as a refund even if you owe no tax. Your tax preparer or tax software can calculate the exact amount you will receive.

Do I have to buy the vehicle new, or can I buy it used?

You can buy either new or used, but the credits are different. New vehicles can may have access to for up to $7,500. Used vehicles can may have access to for up to $4,000, but the vehicle must be at least two years old and cost no more than $25,000. The income limits are also lower for used vehicles.

What if the dealership says the vehicle qualifies but I am not sure?

Check the Department of Energy's list of may have access to vehicles at fueleconomy.gov or the IRS website. You can search by vehicle make and model year. If the vehicle is on the list, it meets the requirements. If you are still uncertain, you can ask the dealership to show you the documentation they used to determine it qualifies.

Does the credit explore to electric motorcycles or scooters?

No. The federal EV tax credit applies only to four-wheeled vehicles: cars, SUVs, vans, and pickup trucks. Two-wheeled vehicles and three-wheeled vehicles do not may have access to, even if they are electric.

Can I claim the credit if I am not a U.S. citizen?

You must have a valid Social Security number or individual taxpayer identification number (ITIN) to claim the credit. Citizenship is not required, but you must file a federal tax return and meet all other requirements, including the income limits and vehicle requirements.