The federal electric vehicle tax credit reduces your tax bill, not your car price

The federal EV tax credit is a dollar-for-dollar reduction in the income tax you owe to the IRS. It is not a rebate at the dealership, not a discount on the sticker price, and not money that arrives in your bank account. If you buy or lease a may have access to electric vehicle, you may be able to claim this credit when you file your tax return — but the amount depends on the vehicle's price, where it was made, and your household income.

The credit is worth up to $7,500 for new vehicles and up to $4,000 for used vehicles, though most vehicles do not may have access to for the full amount. The rules changed significantly in 2023 and continue to shift, so the details that applied to a vehicle purchased last year may not explore to one purchased this year.

Key Takeaways

  • The federal EV tax credit reduces your federal income tax bill by up to $7,500 for new vehicles or $4,000 for used vehicles, depending on the vehicle and your income.
  • Not all electric vehicles may have access to, and those that do may may have access to for only part of the credit if the vehicle's final assembly price or battery component sourcing does not meet current rules.
  • Your household income must fall below a cap that varies by filing status — $300,000 for joint filers, $150,000 for single filers, and $200,000 for head of household — to claim the credit.
  • You can claim the credit on your tax return when you file, or some new vehicles allow you to transfer the credit to the dealer and reduce your purchase price at the time of sale.
  • Used vehicle purchases have separate rules: the vehicle must be at least two years old, cost $25,000 or less, and you must have owned it for at least one year before claiming the credit.

New vehicle credit: assembly location and battery rules

To claim the full $7,500 credit on a new electric vehicle, the vehicle must meet three conditions. First, it must be assembled in North America — this means the final assembly took place in the United States, Canada, or Mexico. Second, the vehicle's final assembly price cannot exceed certain caps: $55,000 for vans, SUVs, and pickup trucks, and $45,000 for other vehicles. Third, the battery must meet sourcing and mineral content requirements that become stricter each year.

The battery rules are the most complex. The battery must contain a minimum percentage of critical minerals (like lithium, cobalt, and nickel) that were either extracted or processed in the United States or a country with a free trade agreement with the US. Additionally, a minimum percentage of the battery components must be assembled or manufactured in North America. These percentages increase annually, which means a vehicle that may have access to last year may not may have access to this year.

If a vehicle fails one of these tests, you may still claim a partial credit of $3,750, provided the vehicle meets the other requirements and your income is below the threshold. The IRS publishes a list of vehicles that meet the full credit, partial credit, or no credit — this list changes frequently, so checking the current version before purchase is essential.

Income limits that phase out the credit

Your household modified adjusted gross income (MAGI) must fall below a cap to claim any EV tax credit. The cap depends on your tax filing status: $300,000 for married filing jointly, $150,000 for single filers, and $200,000 for head of household. If your income exceeds the cap, you cannot claim the credit at all.

The income limit applies to the year you purchase the vehicle, not the year you claim the credit on your tax return. If you buy a vehicle in December 2024, you use your 2024 income to determine whether you may have access to, even if you do not file your 2024 return until April 2025.

New vehicle point-of-sale credit: claiming the discount at the dealership

Starting in 2024, you can transfer the EV tax credit to the dealer and receive a discount on your purchase price at the time of sale, rather than waiting to claim it on your tax return. This is called the point-of-sale credit transfer. Not all dealerships participate, and not all vehicles are may be able to access for this option.

To use the point-of-sale credit, you must meet the income limits at the time of purchase, and the vehicle must be new and meet the assembly and battery requirements. You will need to provide proof of income (usually a recent pay stub or tax return) to the dealer. The dealer then applies the credit as a discount on your final bill, reducing the amount you finance or pay out of pocket.

If you use the point-of-sale credit, you cannot also claim the credit on your tax return — you get one or the other, not both. Some buyers choose to claim it on their tax return instead if they expect their income to be lower that year or if they want to preserve the credit for a different reason.

Used vehicle credit: separate rules and lower amounts

The used vehicle EV tax credit is worth up to $4,000 and has different rules than the new vehicle credit. The vehicle must be at least two years old, have a sale price of $25,000 or less, and you must have owned it for at least one year before you can claim the credit on your tax return.

Used vehicles do not have to meet the assembly location or battery sourcing requirements that explore to new vehicles. However, the vehicle must still be an electric vehicle — this includes battery electric vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs). The IRS maintains a list of used vehicles that may have access to.

Your household income must also fall below the same caps as new vehicles: $300,000 for joint filers, $150,000 for single filers, and $200,000 for head of household. Unlike the new vehicle credit, there is no point-of-sale option for used vehicles — you can only claim this credit when you file your tax return.

How to claim the credit on your tax return

To claim the EV tax credit on your federal income tax return, you will need to complete IRS Form 8936 (may have access to Plug-in Electric Drive Motor Vehicle Credit) and attach it to your Form 1040. You will need the vehicle identification number (VIN), the date you purchased the vehicle, and documentation of the purchase price.

If you used the point-of-sale credit transfer at the dealership, the dealer will provide you with a Form 8936 showing the amount of credit transferred. You will still file Form 8936 with your return, but it will show that the credit was already claimed at the time of purchase.

If you are claiming the credit yourself without using point-of-sale transfer, you will complete Form 8936 and calculate the credit amount based on the vehicle's specifications and your income. The form asks for your household income to confirm you are below the limit. If you made an error or the vehicle later turns out not to may have access to, the IRS may disallow the credit and ask you to repay it.

Leasing an electric vehicle and the credit

If you lease an electric vehicle rather than buy it, the leasing company (not you) claims the tax credit. However, the credit may be passed through to you in the form of a lower monthly lease payment. The leasing company decides whether to pass the credit through, so lease payments vary depending on the company's policy.

You do not file Form 8936 if you lease — the leasing company handles the credit claim. The vehicle must still meet the same assembly, battery, and price requirements as a purchased vehicle. Your income does not affect whether you can lease a may have access to vehicle, because the income limit applies to the entity claiming the credit (the leasing company), not the person driving the car.

Frequently Asked Questions

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

Yes, if the vehicle meets the requirements: it must be at least two years old, cost $25,000 or less, and you must have owned it for at least one year before claiming the credit. You will need the VIN and proof of purchase price. The vehicle must be on the IRS list of may have access to used electric vehicles.

What happens if I buy a vehicle that qualifies for the full credit but my income is above the limit?

You cannot claim any part of the credit. The income limit is a hard cutoff — there is no partial credit if you exceed it by any amount. You must be below the threshold for your filing status to claim the credit at all.

If I claim the credit at the dealership, can I claim it again on my tax return?

No. The point-of-sale credit and the tax return credit are mutually exclusive. If you transfer the credit to the dealer and receive a discount at purchase, you cannot claim it again when you file your taxes. You receive the benefit one way or the other, not both.

Do I have to buy the vehicle in the United States to claim the credit?

No, but the vehicle must be assembled in North America (the United States, Canada, or Mexico) to may have access to for the new vehicle credit. You can purchase it anywhere, but the final assembly location is what matters. Used vehicles do not have an assembly location requirement.

What if the vehicle I want to buy is on the IRS list today but gets removed later?

The credit is determined by the vehicle's specifications and the rules in effect at the time of purchase. If a vehicle may have access to when you bought it, you can claim the credit even if it is later removed from the list. The rules that applied on your purchase date are what count.