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Electric Vehicle Tax Credits: What You Need to Know

Understanding EV tax credits after the Inflation Reduction Act of 2022


If you're shopping for an electric vehicle (EV) or plug-in hybrid electric vehicle (PHEV), it's important to note that the Inflation Reduction Act of August 2022 brought major changes to federal EV tax credits. Some of the new rules already apply, while many will take effect on January 1, 2023. Highlights include:

  • Effective immediately, qualifying vehicles must be assembled in North America.
  • Starting in 2023, increasing percentages of battery minerals and components must be sourced from the U.S. or from one of its free-trade partners.
  • There are significant new eligibility limits on both the price of the vehicle and the income of the buyer; if either figure is too high, no credit for you.
  • Used EVs sold by dealers will be eligible for a one-time tax credit.
  • The manufacturer vehicle sales cap will go away, meaning brands such as Chevrolet, Tesla and Toyota that reached the previous 200,000-unit limit can once again offer these incentives starting in 2023.
  • Starting in 2024, a new mechanism will allow buyers to take the EV tax credit directly from the dealer at the point of sale rather than having to wait for the next tax season.

Why all the changes? The federal government clearly wants to promote the production and sale of affordable mass-market EVs, as well as strengthen our regional EV supply chain. On the downside, the new legislation will eliminate many EVs and PHEVs that previously qualified for an electric car tax credit. Let's take a closer look at all the ins and outs.

How do the new EV tax credits work?

Click on any of the links below to jump to the information you're looking for, or keep scrolling to get all the details.

  1. What are the requirements regarding North American supply and production?
  2. What are the eligibility limits on new vehicle prices and buyer income?
  3. What about used EVs?
  4. Which new vehicles qualify for the federal EV tax credit for the rest of 2022?
  5. What happens to the tax credit that existed before the Inflation Reduction Act?
  6. What if I purchased a credit-eligible EV before the passage of the Inflation Reduction Act?
  7. Which vehicles qualified for the previous federal EV tax credit?
  8. FAQs

1. What are the requirements regarding North American supply and production?

  • The final assembly of the new vehicle must occur in North America (Canada, Mexico, U.S.). This went into effect on August 16, 2022, and will affect vehicles purchased through 2032.
  • The maximum credit available for new vehicles is still $7,500, but the size of the battery no longer dictates how much of the credit you get. Starting in 2023, the full $7,500 credit will be split into halves with separate criteria:
    1. Critical battery minerals: To qualify for this $3,750 credit in 2023, at least 40% of the critical minerals in the battery must have been either recycled in the U.S. or extracted or processed there (or in any country that has a free trade agreement with the U.S.). After that, the required percentage increases to 50% in 2024, 60% in 2025, 70% in 2026 and 80% in 2027.
    2. Battery components: To qualify for the remaining $3,750 credit in 2023, at least 50% of the EV's battery components must be manufactured or assembled in the U.S. (or in any country that has a free-trade agreement with the U.S.). After that, the percentage increases to 60% in 2024-2025, 70% in 2026, 80% in 2027, 90% in 2028 and 100% in 2029.
  • Blacklisted countries ultimately cannot be involved with battery components or minerals. From January 1, 2024, a vehicle will be ineligible if any of the battery's components were sourced from a "foreign entity of concern," which includes China and Russia as of this writing, as well as Iran and North Korea. As of January 1, 2025, this exclusion will extend to cover critical battery minerals too. That's a big deal given China's outsized role in the minerals supply chain to date.

2. What are the eligibility limits on vehicle price and buyer income?

The following rules are effective as of January 1, 2023:

  • Price limits for new vehicles
    1. SUVs, vans and pickup trucks: no more than $80,000
    2. Any other qualifying vehicle: no more than $55,000
  • Income limits for new vehicles
    These limits are based on modified adjusted gross income (MAGI), which is roughly the adjusted gross income with certain allowable deductions added back in, for the current or prior tax year. Depending on filing status, the limits are:
    1. Joint tax returns or a surviving spouse: MAGI must not exceed $300,000.
    2. Head of household: MAGI must not exceed $225,000.
    3. Individual or any other filing status: MAGI must not exceed $150,000.

3. What about used EVs?

The tax credit for used EVs will be calculated at either 30% of the vehicle's value or $4,000, whichever is less. The rules for used EVs also take effect on January 1, 2023, and are as follows:

  • Price limit for used vehicles
    There is a hard eligibility ceiling at a sale price of $25,000 for all used EVs regardless of type.
  • Income limits for used vehicles
    By filing status, the limits are:
    1. Joint tax returns or a surviving spouse: MAGI must not exceed $150,000.
    2. Head of household: MAGI must not exceed $112,500.
    3. Individual or any other filing status: MAGI must not exceed $75,000.
  • Other eligibility requirements for used EVs
    1. The vehicle must be at least two model years older than the calendar year in which it is purchased.
    2. The used EV tax credit will only apply once in the vehicle's lifetime. Subsequent owners will not be eligible.
    3. Once a buyer has taken the federal used EV credit, they are not eligible for another credit for three years.
    4. The vehicle must be for personal use and "not for resale."
    5. The vehicle must be purchased through a dealer.
    6. Only an individual may claim the used EV tax credit. Businesses are excluded.

4. Which new vehicles qualify for the federal EV tax credit for the rest of 2022?

The following vehicles should qualify the federal EV tax credit for the remainder of 2022 because they are or will be assembled in North America. After the guidelines have been set for 2023, we'll have a better idea of the exact amount of tax credits each vehicle will qualify for and the list of eligible vehicles may change. The current list comes from the U.S. Department of Energy and is based on data submitted to the National Highway Traffic Safety Administration (NHTSA) and FuelEconomy.gov as of August 1, 2022.

Whether or not the vehicle you're interested in is on the list, it's a good idea to double-check its build location to be sure. You can run the vehicle identification number (VIN) through a VIN decoder and look for the country name in the "Plant Information" field at the bottom of the page, or else simply check the window sticker if you have access.

We will strive to keep the list up to date as vehicle manufacturers continue to submit the applicable vehicle identification information to the relevant government agencies and more information becomes available.

NOTE: Some manufacturers that assemble otherwise eligible vehicles in North America, such as General Motors and Tesla, have reached the cap of 200,000 EV credits used and are therefore not currently eligible for the Clean Vehicle Credit in 2022. As noted, the EV sales cap will be lifted once 2023 rolls around. Also, some of the vehicles on this list will be ineligible in 2023 because their MSRPs exceed the limits discussed above.

Edmunds logo
Built in North America?
2022Audi Q5 Plug-In HybridNoYes
2022BMW 3 Series Plug-In HybridNoNot all. Verify your VIN, as it may be built in either Mexico or Germany.
2022BMW X5 Plug-In HybridNoYes
2022Chrysler Pacifica Plug-In HybridNoYes
2022Ford Escape Plug-In HybridNoYes
2022Ford F-150 LightningNoYes
2022Ford Mustang Mach-ENoYes
2022Ford E-Transit Cargo VanNoYes
2022Jeep Grand Cherokee 4xeNoYes
2022Jeep Wrangler 4xeNoYes
2022Lincoln Aviator Plug-In HybridNoYes
2022Lincoln Corsair Plug-In HybridNoYes
2022Lucid AirNoYes, but price limitations will make it ineligible in 2023.
2022Nissan LeafNoYes
2022Rivian R1TNoYes
2022Tesla Model 3Yes, but cap goes away in 2023Yes
2022Tesla Model YYes, but cap goes away in 2023Yes
2022Volvo S60 Plug-in HybridNoYes
2023Audi Q5 Plug-In HybridNoYes
2023BMW 3 Series Plug-in HybridNoNot all. Verify your VIN, as it may be built in either Mexico or Germany.
2023BMW X5 Plug-In HybridNoYes
2023Mercedes EQS SUVYesYes, but price limitations will make it ineligible in 2023.
2023Nissan LeafNoYes
2023Volkswagen ID.4NoYes
2023Volvo S60 Plug-in HybridNoYes


5. What happens to the tax credit that existed before the Inflation Reduction Act?

The Internal Revenue Service has provided some preliminary guidelines regarding the EV tax credit and its immediate future.

The previous $7,500 tax credit, which did not have limitations on income, price or battery component sourcing, will still be in effect until December 31, 2022. However, now that the Inflation Reduction Act has been signed into law, the North American "final assembly" requirement will immediately apply. This will greatly reduce the pool of vehicles to choose from until automakers start to locate more of their supply chains and factories within North America, which could take a few years.

6. What if I purchased a credit-eligible EV before the passage of the Inflation Reduction Act?

If you purchased an eligible EV or PHEV prior to August 16, 2022, the tax credit should still be valid on your 2023 income taxes even if that vehicle is no longer on the approved vehicle list. Even if you have a written binding sales contract prior to August 16 but take delivery of the vehicle in 2023, the older rules of the tax credit should still apply.

This federal incentive has often been referred to as a flat $7,500 credit, but it's only worth $7,500 to someone whose tax bill at the end of the year is $7,500 or more. Let's say you owe $4,000 in income tax — that's all the tax credit will be. Uncle Sam's not writing a refund check for the other $3,500. And an unused portion of the credit can't be applied against the following year's taxes. This is because the electric vehicle tax credit is nonrefundable. It can bring your federal tax bill to zero, but it will not stack on to a potential tax refund.

If you are leasing the EV, the tax credit goes to the manufacturer that's offering the lease, not you. The carmaker will likely factor the credit into the cost of the lease to lower your monthly payment, but this isn't mandatory.

The previous credits were also based on the electric vehicle's battery size. Most electric vehicles qualified for the full $7,500, but for some plug-in hybrid models, the credit amount could fall well below the maximum credit. For example, the Toyota Prius Prime plug-in hybrid only qualified for a $4,502 tax credit.

7. Which vehicles qualified for the previous federal EV tax credit?

Edmunds logo

Audi e-tron GT

$7,500

Audi RS e-tron GT

$7,500

Audi e-tron SUV

$7,500

Audi e-tron Sportback

$7,500

Audi Q4 e-tron

$7,500

Audi Q4 Sportback e-tron

$7,500

BMW i4 eDrive40 Gran Coupe

$7,500

BMW i4 M50 Gran Coupe

$7,500

BMW iX xDrive50

$7,500

Ford Mustang Mach-E

$7,500

Ford E-Transit

$7,500

All General Motors electric vehicles (Chevrolet, Cadillac)

No longer eligible for federal EV tax credits

Hyundai Ioniq 5

$7,500

Hyundai Kona Electric

$7,500

Jaguar I-Pace

$7,500

Kia EV6

$7,500

Kia Niro EV

$7,500

Lucid Air

$7,500

Mazda MX-30

$7,500 (full tax credit may not be available to lessees)

Mercedes-Benz EQS sedan

$7,500

Mini Hardtop Electric

$7,500

Nissan Leaf

$7,500

Polestar 2

$7,500

Porsche Taycan

$7,500

Porsche Taycan Cross Turismo

$7,500

Porsche Taycan Sport Turismo

$7,500

Rivian R1T

$7,500

Rivian R1S

$7,500

All new Tesla models

No longer eligible for federal EV tax credits

Volkswagen ID.4

$7,500

Volvo XC40 Recharge

$7,500

The U.S. Department of Energy maintains the entire list. You can sort by vehicle type or manufacturer.

8. FAQs

How do I claim the EV tax credit?
Your process for claiming the EV tax credit depends on when you purchased the vehicle. If you purchased an eligible EV in 2022, the tax credit can be claimed on IRS Form 8936 when you do your taxes in 2023. Your tax person should know how to fill it out and if you're using tax software, it should guide you through the process. Those purchasing an eligible EV in 2023 will claim the credit when preparing their taxes in 2024. Starting in 2024, you can elect to transfer the EV tax credit to your qualified dealer at the point of sale and effectively turn the credit into a discount on the car, eliminating the previous lag time between the purchase and tax season.

How does the EV charger tax credit work?
If you are installing an EV charger at your home, the federal credit is generally 30% of the charger's cost or $1,000, whichever is smaller. For those wanting to install an EV charger at a business or investment property, the credit is generally 30% of the charger's cost or $30,000, whichever is smaller. You can claim the EV charger tax credit the following year on your income taxes using IRS Form 8911. Some states may have additional incentives for installing an EV charger, so it's worth looking into this list maintained by the DOE. Your local utility company might also have incentives for installing an EV charger.

How much can you write off for an electric car?
Technically, a write-off is a tax deduction, whereas the federal EV tax credit of up to $7,500 is just that — a tax credit. The difference is that a $7,500 write-off reduces your taxable income by that amount before the tax is calculated, whereas a $7,500 credit means you pay $7,500 less in tax than you would have otherwise. In case that didn't clear things up, just remember that for a given dollar amount, a tax credit means a lot more money in your pocket than a write-off. The maximum federal tax credit of $7,500 on an eligible electric vehicle is effectively a $7,500 handout to you, which is far more than what you'd gain if you simply subtracted $7,500 from your taxable income. It's also worth looking into this list of state EV incentives maintained by the DOE so that you can maximize the benefits of buying an EV.

How does the federal tax credit for EVs work?
In order to qualify for the full $7,500 federal EV tax credit, the EV you purchase has to be brand new and assembled in North America. Beyond that, increasingly stringent geographical requirements are being phased in regarding the composition and production of the car's battery pack. Read our full article for the latest details. Until 2024, the way you claim the federal tax credit for EVs is by using IRS Form 8936, which you submit as part of your annual taxes to the federal government. From 2024 onward, you'll also have the option of transferring your federal EV tax credit to a qualified selling dealer and receiving the amount of the credit as a discount on the car, as opposed to having to wait for tax season.

Was there any fine print for the previous EV tax incentives?
Yes. One rule limited the federal tax credit to the original buyer of a qualified EV or plug-in hybrid. There were a few other conditions:

  • If you were leasing a vehicle, the credit stayed with the manufacturer that offered the lease since the manufacturer was the actual owner of the car. In most cases, the tax credit was factored into the cost of the lease, so the customer would benefit to some extent.
  • The credit wasn't applicable to an electric vehicle being purchased for the purpose of reselling it. That's a gray area, though, and would be tough for authorities to prove.
  • The vehicle had to be primarily used in the United States.
  • Plug-in and battery electric vehicles had to be built by qualified manufacturers to be eligible for the full $7,500 credit.
  • Plug-in hybrids and battery electric vehicles also had to have battery packs that were rated for at least 4 kWh of energy storage and were capable of being recharged from an external source.
  • Manufacturers were not required to certify to the agency that vehicles met the requirements in order to qualify for the various credits. For vehicles not listed on the Department of Energy site or on the IRS list of qualified vehicles, a buyer could generally rely on the manufacturer's representation that the vehicle was eligible. That statement could either be in writing or on the company's website. The same thing went for electric motorcycles, plug-in and EV conversions, three-wheel EVs and low-speed EVs.

Are there tax credits from states or other sources?
Yes. While the federal tax credits for plug-in and natural gas vehicles get the most mention, there also are dozens of state and regional incentives on plug-in vehicles and those that use alternative fuels. Many states have a dozen or more programs. Many, however, apply only to businesses. Some credits come in the form of exemptions from fees and inspections. Others are non-monetary incentives such as carpool lane access and free parking.

Retail buyers in a number of states can get some cost relief in the form of tax credits, rebates, or reduced vehicle taxes or registration fees for buying a qualified alternative-fuel or electric-drive vehicle.

In California, for example, people who buy or lease a new electric car can get a $750 cash rebate. That's in addition to the federal tax credit, and the tandem can reduce the effective out-of-pocket cost of the car by up to $8,000. Plug-in hybrids are a little different. Because they have smaller batteries and burn gasoline part of the time, the reward is offered on a sliding scale depending on battery size, up to $750 under California's Clean Fuel Reward program.

The U.S. Department of Energy also has an interactive chart of state incentives. It's a good idea to be sure about available state and local incentives before you shop. Just because a state has a program doesn't mean it will continue indefinitely.

How about fuel cell cars?
Hydrogen fuel cell electric vehicles do qualify for incentives in some states and are explicitly mentioned in the Inflation Reduction Act as qualifying vehicles. Take a look at the U.S. Department of Energy website to see the latest hydrogen laws and incentives.

How did the previous electric vehicle tax credit work?
The previous federal tax-credit incentive was worth up to $7,500 to someone whose tax bill the following year was $7,500 or more. Let's say you bought a Hyundai Ioniq 5 EV or another eligible vehicle and you owed $6,000 in income tax for that year. That's all you'd get; the IRS would ignore the remaining $1,500. If you bought an EV in 2022, you will need to complete and file IRS Form 8936 with your federal tax return to claim the credit. If you are leasing, the tax credit will go to the finance company, not you. The carmaker will likely factor the credit into the cost of the lease to lower your monthly payment, but this isn't mandatory.

Is there still a federal tax credit for electric cars in 2022?
Yes and no, depending on when you purchased. Those who bought an eligible electric car before the adoption of the Inflation Reduction Act on August 16, 2022 should qualify for the previous federal tax credit of up to $7,500. The exceptions are Tesla, Toyota and General Motors, whose tax credits have been phased out, but will return in 2023. The tax credit is also available on fuel cell electric vehicles and plug-in hybrid electric vehicles, but the amount can vary based on battery size. There are far fewer cars that are eligible for EV tax credits in 2022 after the Inflation Reduction Act, but they do exist and you can see the list in this article.

Does California have a tax credit for electric cars?
California offers rebates, as opposed to tax credits, for eligible vehicles. The rebates are for up to $750 for electric vehicles and plug-in electric vehicles, based on the size of the battery. Your local utility company might also offer an incentive on electric vehicles, so explore all your options.

Is there a tax credit for buying a Tesla in 2022?
No. Tesla has sold over 200,000 eligible electric vehicles, and all of its federal tax credits have been phased out. There are still state incentives available for buying a Tesla, so check with your state government's transportation department. In 2023, the EV sales cap no longer applies and Tesla customers will be eligible for the new tax credit. That said, the vehicle must fall under the pricing rules and income requirements discussed in this article.




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