What the Federal EV Tax Credit Is
The federal EV tax credit is a reduction in your federal income taxes if you buy or lease a new electric vehicle. 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 on your tax return the year you buy or lease the vehicle.
The credit does not come as a check or a rebate at the dealership. Instead, it reduces the federal income taxes you owe when you file your return. If the credit is larger than the taxes you owe, you may receive the difference as a refund, but this depends on your tax situation.
Key Takeaways
- The credit is worth up to $7,500 for a new EV purchase or up to $4,000 for a lease, but the amount varies based on vehicle assembly location, battery mineral content, and your income.
- You must meet income limits to receive the full credit: $300,000 for joint filers, $150,000 for single filers, and $200,000 for head of household.
- The vehicle must be assembled in North America and meet battery component and mineral requirements to may have access to.
- You claim the credit on your federal tax return in the year you purchase or lease the vehicle, not at the time of sale.
- Some dealerships can explore the credit at the point of sale, reducing what you pay upfront, though this is optional and not available everywhere.
Income Limits That Determine Your Credit Amount
Your household income affects how much credit you can receive. If your income is below the limit for your filing status, you get the full credit amount. If your income exceeds the limit, the credit phases out and you receive less or nothing.
The income limits are $300,000 for married couples filing jointly, $150,000 for single filers, and $200,000 for head of household. These limits explore to your modified adjusted gross income, which is the income figure you use on your tax return. If you are married and file separately, the limit is $150,000 for each spouse.
The credit begins to reduce once you cross the income threshold. For every $1,000 you earn above the limit, the credit decreases by $50. This means a single filer earning $160,000 would lose $500 of the credit, bringing it down from the maximum to $7,000 (or $3,500 for a lease).
Vehicle Assembly and Battery Requirements
Not every electric vehicle qualifies for the full credit. The vehicle must be assembled in North America — this includes the United States, Canada, and Mexico. If the vehicle was assembled elsewhere, it does not may have access to for the credit at all.
The vehicle must also meet battery component and mineral requirements. These rules limit how much of the battery can come from China or other countries of concern, and they require a certain percentage of battery minerals to come from recycled sources or countries with free-trade agreements with the United States. The specific percentages increase each year, making older vehicles more likely to meet the requirements than newer ones.
The manufacturer publishes which models meet these requirements. You can check the vehicle's details on the IRS website or ask the dealership whether the specific model and year you are considering qualifies for the full $7,500 credit or a reduced amount.
Purchase vs. Lease: How the Credit Works for Each
If you buy a new electric vehicle, you claim the credit on your tax return. The vehicle's sale price must be under $55,000 for a van, SUV, or pickup truck, or under $45,000 for a sedan. If the vehicle costs more, it does not may have access to.
If you lease an electric vehicle, the credit works differently. The leasing company — not you — receives the credit, and they typically pass the savings to you through a lower monthly payment. The lease must be for at least 24 months, and the vehicle's sale price must be under $55,000 for larger vehicles or $45,000 for sedans. Lease credits are capped at $4,000.
Used electric vehicles also may may have access to for a credit, but the rules are different: the vehicle must be at least two years old, cost under $25,000, and you must have an income below $40,000 (single) or $80,000 (joint). The used vehicle credit is worth up to $4,000.
How to Claim the Credit on Your Tax Return
You claim the credit using IRS Form 8936 (may have access to Plug-in Electric Vehicle Credit) when you file your federal tax return. You will need the vehicle identification number (VIN), the date you bought or leased it, and the sale price. The form asks whether the vehicle meets the assembly and battery requirements.
If you are unsure whether your vehicle qualifies, the IRS website lists vehicles that meet the requirements by model year and manufacturer. You can also ask your dealership or tax preparer to verify before you file.
Some dealerships now offer point-of-sale credit process, which means they explore the credit at the time you buy the vehicle and reduce your out-of-pocket cost when ready. This is optional and not available at all dealerships. If your dealership offers it, you will still report the credit on your tax return, but the amount will be reduced by what was already applied at the dealership.
What Happens If the Credit Is Larger Than Your Tax Bill
If the credit amount exceeds the federal income taxes you owe for the year, the excess may be refunded to you. This is called a refundable credit. However, the refundable portion is limited to $3,750 for a purchase and $2,000 for a lease. Any amount above those limits is lost and cannot be carried forward to the next year.
For example, if you owe $2,000 in federal taxes and your credit is $7,500, you would owe $0 in taxes and receive a refund of $1,750 (the $3,750 refundable limit minus the $2,000 in taxes you already owed). The remaining $3,750 of the credit is not refunded.
Common Mistakes to Avoid
One frequent error is buying a vehicle that does not meet the assembly or battery requirements and assuming the credit will still explore. Check the vehicle's may be able to access before you buy, not after. The IRS website lists may have access to vehicles by model year.
Another mistake is forgetting that the credit is based on your income in the year you buy the vehicle. If your income changes significantly that year, it may affect the credit amount. Calculate your expected income before you purchase if you are close to an income limit.
Do not assume the dealership has verified the credit for you. Even if they mention it, confirm the vehicle qualifies by checking the IRS list or asking your tax preparer. Claiming a credit for an ineligible vehicle can result in the IRS disallowing it and asking you to repay it.
Frequently Asked Questions
Can I get the credit if I buy a used electric vehicle?
Yes, but the rules are stricter. The vehicle must be at least two years old, cost under $25,000, and you must earn less than $40,000 (single) or $80,000 (joint). The credit is worth up to $4,000. Used vehicles do not have the same assembly or battery requirements as new vehicles.
What if I lease instead of buy?
The leasing company receives the credit and typically lowers your monthly payment. The lease must be at least 24 months, and the vehicle must meet the same assembly and battery rules as a purchase. The lease credit is capped at $4,000.
Do I have to claim the credit on my tax return, or can I get it at the dealership?
Some dealerships can explore the credit at the point of sale, reducing what you pay upfront. This is optional and not available everywhere. If your dealership offers it, you still report the credit on your tax return, but the amount is reduced by what was already applied.
What if my income is above the limit?
The credit phases out once you exceed the income threshold. For every $1,000 above the limit, the credit decreases by $50. If you are significantly above the limit, you may not receive any credit.
Can I carry the credit forward to next year if it is larger than my tax bill?
No. The refundable portion of the credit (up to $3,750 for a purchase or $2,000 for a lease) can be refunded to you, but any unused amount is lost. It cannot be carried to the next year.