The present federal electric car tax credit program when buying has been completely redesigned with the approval of the president and Congress for the Inflation Reduction Act. Due to volume restrictions, the changes let customers of market leaders like Tesla, Toyota, and General Motors once again be eligible for the tax credit. In addition, buyers of electric cars are also now eligible for a federal EV tax credit for the first time.
What is the tax credit for buying an electric car?
The tax benefit for new electric vehicles (EVs) is restricted to $7,500, and for used EVs, it is limited to $4,000, or 30% of the sale price. The Inflation Reduction Act of 2023 to 2032 made these modifications, as Taxpayers are limited to one credit per car.
Furthermore, the new Federal Electric Car Tax Credit is only available to new cars that cost $55,000 or less. A new truck, van, or SUV must cost no more than $80,000 to buy. In fact, some automakers have recently lowered the price of their electric vehicles, sometimes down to slightly under the caps.
Because of the law’s current design, which promotes domestic manufacturing of automobiles, batteries, and the raw materials used to make them, owners of many other models are no longer eligible to obtain credit.
Who is eligible for a tax benefit is carefully limited under the Inflation Reduction Act?
The Inflation Reduction Act strictly restricts who is eligible for a tax benefit. A single filer’s modified adjusted gross income (MAGI) cannot exceed $150,00. The maximum for joint filers is $300,000, while heads of household must have a MAGI of no more than $225,000. This law is based on the theory that consumers who earn more than the threshold can afford to purchase an electric vehicle (EV) without the tax credit, hence no incentive is required.
Customers who buy eligible electric or plug-in hybrid vehicles are eligible for the nonrefundable electric vehicle tax credit, sometimes known as the EV credit. Your tax due is reduced by the amount of nonrefundable tax credits. A new automobile must cost $55,000 or less to be eligible for the new Federal Electric automobile Tax Credit.
A new truck, van, or SUV can only be purchased for $80,000 or less. Many automakers have recently lowered the price of their electric vehicles, sometimes to just under the caps, but they dispute that this was done for that reason. However, Taxpayers may choose to transfer the credit to the dealer in order to have the price of the car lowered by the credit amount, or they may choose to claim the tax credit on their federal taxes.
Which Electric Cars Keep Their Tax Credit?
The following cars are eligible for a complete $7,500 tax credit, according to the Treasury Department’s official list of qualifying vehicles:
- Chrysler Pacifica Hybrid PHEV
- Ford F-150 Lightning
- Chevrolet Bolt and Bolt EUV
- Tesla Model 3 Performance
- Tesla Model X Long Range
- Tesla Model Y All-Wheel Drive
- Ford Escape Plug-In Hybrid
- Jeep Grand Cherokee 4xe
- Jeep Wrangler 4xe
- Lincoln Corsair Grand Touring
- Rivian R1S and R1T
NOTE: These is cars are only eligible if registered between January 1 and December 31, 2024.
How Does the EV Tax Credits Work?
Subject to income and price restrictions, the credits lower the filer’s annual federal income tax. The tax credits for EVs are not refundable. They are therefore limited to the tax due in the year that you took delivery. Companies may, however, carry over more EV tax credits to subsequent years. The filer’s tax credit may be reduced or forfeited due to a variety of limitations.
How to Claim EV Tax Credits
There are currently very few new cars that qualify for the $3750 or $7500 EV tax credit. If you are a buyer either a person or a business you can claim the credit by:
- Submitting Form 8936 and a federal income tax return for the year the car was delivered and put into use.
- Claiming the credit right away at the point of sale, after which you give the dealership permission to transfer it and use it to lower the purchase price by the credit’s amount.
- Or through an IRA law loophole.
If the automaker’s bank is the legal owner of a leased car, you will not eligible to individually claim an EV tax credit for it.
How to Easily Qualify for a Tax Credit with a Used EV
The previous iteration of the EV tax credit was highly controversial due to its exclusion of used vehicles. The IRA fixes this. Taxpayers who acquire eligible used electric vehicles (EVs) may be eligible for a credit of up to $4,000, up to 30% of the vehicle’s purchase price, starting in 2023.
Here are the requirements:
- A used car needs to have a fuel cell or plug-in electric battery with a minimum capacity of 7 kilowatt hours.
- Only acceptable for a vehicle’s initial transfer.
- Only one credit claims every three years is permitted.
- The car model needs to be two years old or older.
- Vehicle’s weight must not exceed 14,000 pounds.
- The car must be purchased for no more than $25,000.
Qualifying for a tax credit when purchasing a used electric vehicle can be both financially advantageous and environmentally responsible. To ensure eligibility, it is essential to understand the specific criteria set by government programs or incentives.
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