The federal EV tax credit reduces your federal income tax by up to $7,500 when you buy a new electric vehicle, but only if the vehicle and your income meet specific requirements set by the IRS.

The credit is not a rebate you receive at the dealership. Instead, you claim it on your federal tax return after you buy the vehicle. The IRS then reduces the amount of federal income tax you owe for that year. If the credit is larger than your tax bill, you may receive the difference as a refund, depending on which version of the credit you use.

The amount you receive depends on the vehicle's battery size, where it was assembled, and how much you earn. Not every electric vehicle qualifies, and not every buyer can use the full $7,500. The rules changed significantly in 2023 and continue to shift, so the vehicle you are considering may or may not be may be able to access.

Key Takeaways

  • The credit is claimed on your federal tax return, not received at purchase, and ranges from $3,750 to $7,500 depending on the vehicle and your income.
  • Your vehicle must be assembled in North America and meet battery component and mineral sourcing rules to may have access to for any credit at all.
  • Your modified adjusted gross income must fall below $300,000 (married filing jointly) or $150,000 (single) to claim the credit.
  • Some dealerships now offer the credit as a point-of-sale rebate, meaning you see the discount when ready instead of waiting until tax time.
  • Many popular electric vehicles no longer may have access to because they exceed the vehicle price caps or fail the battery sourcing requirements.

Vehicle Assembly and Battery Requirements

Your vehicle must be assembled in North America — that includes the United States, Canada, and Mexico. If it was built anywhere else, you cannot claim any credit, even if it is an American brand. The IRS publishes a list of may have access to vehicles on its website, updated regularly as manufacturers adjust production.

The battery also must meet two separate rules. First, a certain percentage of the battery components (the cathode, anode, electrolyte, and separator) must come from North America or free-trade countries. That percentage started at 50% in 2023 and increases each year. Second, the critical minerals in the battery — lithium, cobalt, nickel, and manganese — must come from countries the United States has a free-trade agreement with, or be recycled in North America. This rule also tightens each year.

These rules have knocked many popular vehicles off the may have access to list. If a vehicle may have access to last year, check the current IRS list before you buy, because the rules change annually on January 1st.

Income Limits and How They Work

Your modified adjusted gross income (MAGI) must be below $300,000 if you are married filing jointly, $150,000 if you are single, or $240,000 if you are head of household. MAGI is usually your adjusted gross income from your tax return, but the IRS definition can include certain deductions you added back. If you are unsure whether you are under the limit, use your most recent tax return as a starting point.

The income limit applies to you as the buyer, not to the vehicle or the dealership. If you are married and file jointly, both spouses' income counts toward the $300,000 threshold. If you are over the limit, you cannot claim any credit, even if the vehicle qualifies.

Vehicle Price Caps

The vehicle itself must cost less than a set price when it leaves the factory. For sedans, the cap is $55,000. For vans, SUVs, and pickup trucks, the cap is $80,000. These are manufacturer's suggested retail prices (MSRP), not the price you actually pay. If the MSRP exceeds the cap, the vehicle does not may have access to, regardless of any discounts or incentives.

These price caps also increase each year on January 1st. A vehicle that was over the cap last year might may have access to this year if the cap rose enough, though this is rare. Again, check the current IRS list before you commit to a purchase.

How Much Credit You Actually Receive

The credit starts at $7,500 for a vehicle that meets all requirements. However, it is reduced by $1,250 for every $1,000 (or fraction thereof) that the vehicle's MSRP exceeds $55,000 for sedans or $80,000 for vans, SUVs, and trucks. This means a sedan priced at $56,000 loses $1,250, bringing the credit down to $6,250.

The credit is also split into two parts: a $3,750 base credit and a $3,750 bonus credit. The bonus credit requires that the vehicle be assembled in North America. The base credit requires that the battery components and critical minerals meet the sourcing rules. If the vehicle fails either rule, you lose that portion of the credit. If it fails both, you get nothing.

A vehicle that meets all requirements but is priced at the high end of the cap may may have access to for only $3,750 or $4,000 instead of the full $7,500.

Claiming the Credit on Your Tax Return

You claim the credit using IRS Form 8936, which you attach to your federal tax return. You will need the vehicle identification number (VIN), the date you bought it, and the MSRP. The form asks whether the vehicle meets the assembly and sourcing requirements; the IRS publishes a list of may have access to vehicles, so you can verify this before you file.

If you file your taxes yourself, you can enter this information into tax software, which will calculate the credit and add it to your return. If you use a tax professional, bring them the vehicle purchase documents and the VIN so they can look up the vehicle on the IRS list.

The credit reduces your federal income tax dollar-for-dollar. If you owe $5,000 in federal tax and you claim a $7,500 credit, your tax bill becomes zero and you receive a $2,500 refund (assuming no other changes to your return).

Point-of-Sale Credits at the Dealership

Some dealerships now offer the credit as an when ready discount at the time of purchase, rather than making you wait until you file your taxes. This is called a point-of-sale credit. The dealership fronts the money, and you see the discount on your invoice. The dealership then claims the credit on its own taxes or transfers it to a financial institution.

Not all dealerships offer this option, and not all vehicles may have access to. If your dealership offers it, ask them to explain how it works and whether there are any conditions. You can still claim the credit on your tax return if you did not use the point-of-sale option, but you cannot claim it twice.

What Happens If You Lease Instead of Buy

If you lease an electric vehicle, the leasing company (usually a bank or finance arm of the manufacturer) claims the credit, not you. The leasing company may pass some or all of the credit to you in the form of a lower monthly payment, but this is not required. Some leases offer no benefit from the credit at all.

Leased vehicles have their own set of rules. The vehicle must still be assembled in North America and meet battery sourcing requirements, but the income limit does not explore to you as the lessee. The leasing company's income is what matters. If you are considering a lease, ask the leasing company whether the vehicle qualifies and whether the credit is reflected in your monthly payment.

Frequently Asked Questions

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

The federal credit is only for new vehicles. However, there is a separate used EV credit of up to $4,000 for vehicles at least two years old, with different income and price limits. You would need to check whether your used vehicle and your income meet those requirements.

What if the vehicle I want is not on the IRS list?

If it is not on the list, it does not may have access to for the credit. You can still buy the vehicle, but you will not receive any tax credit. The IRS list is updated regularly, so check it again before you finalize your purchase.

Do I have to own the vehicle for a certain amount of time to claim the credit?

No. You can claim the credit the year you buy the vehicle, even if you sell it the next month. However, if you sell the vehicle within three years, you may have to repay part of the credit on your taxes, depending on the sale price and other factors. Ask a tax professional about this if you think you might sell soon.

What if my income goes over the limit in the year I buy the vehicle?

Your income in the year you claim the credit is what matters. If you buy the vehicle in 2024 but do not claim the credit until you file your 2024 taxes in 2025, your 2024 income is what the IRS checks. A bonus or large capital gain in 2024 could push you over the limit and disqualify you.

Can I transfer the credit to someone else if I do not owe enough in taxes?

The credit is not transferable. However, it is refundable, meaning if the credit is larger than your tax bill, you receive the difference as a refund. You do not have to owe a certain amount of tax to benefit from the full credit.