Electric Vehicle Tax Credits 2024: What You Need to Know

Federal EV tax credits in 2024 top out at $7,500 if you're buying a new car and $4,000 if you're buying a used car, while the bank or the automaker's finance company can take a $7,500 tax credit for EV leases but may discount your lease accordingly. If you want to skip the fine print, click here to jump straight to the full list of cars that qualify for an EV tax credit. Otherwise, let's take a quick look at the key rules for each scenario — buying new, buying used and leasing — and then dig into the details.

If you're buying a new EV or PHEV (plug-in hybrid), the "final assembly" of the vehicle must have occurred in North America in order to unlock any tax credits. If it passes that test, now you're looking at two $3,750 electric car tax credits that add up to $7,500 if you meet all the criteria. To get the first $3,750 credit, a certain percentage of the car's critical battery minerals must have been sourced from the U.S. or from any country that has a free-trade agreement with the U.S. The other $3,750 credit requires that a certain percentage of battery components were manufactured or assembled in the same roster of countries. There are also significant eligibility caps on both the manufacturer's suggested retail price of the vehicle — $55,000 for cars, $80,000 for SUVs, trucks and vans — and the income of the buyer, which is subject to limits between $150,000 and $300,000, depending on tax filing status. If either figure is too high, you won't qualify for any federal EV tax credits.

If you're buying a used EV or PHEV, you don't have to worry about where the car was assembled or where its battery bits came from. The income caps are significantly lower, however, ranging from $75,000 to $150,000, while the car itself must be at least two years old and cost no more than $25,000. You also have to buy it from a dealer, not a private party. Check all the boxes and you can get a tax credit of up to $4,000, though there's a sliding scale for cheaper used EVs that we'll explain below.

What about leasing a new EV or PHEV? As of this writing, there's a legislative loophole that lets the originator of the lease (typically the automaker's finance division) take the full $7,500 tax credit for a leased EV, irrespective of the final assembly, battery sourcing and vehicle pricing requirements. It's up to each automaker to decide whether to pass these savings along in the form of more affordable leases, but keep in mind that you might get a hefty discount on a leased EV thanks to this loophole. That's true even if your income would disqualify you from getting the tax credit on a purchased EV — since you're not the one getting the tax credit in this case, your income is irrelevant.

What's changed for 2024?

Beginning on January 1, 2024, a vehicle will be ineligible for a tax credit if any of the battery's components were sourced from a "foreign entity of concern," which includes China, Iran, North Korea and Russia. 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.

This added requirement has reduced the list of eligible vehicles until automakers can restructure their supply chains. We'll monitor this list and update this article as things change.

Also starting in 2024, shoppers will be able to transfer the EV tax credit to a qualified dealer at the point of sale and effectively turn the credit into a discount on the car. To do so, the dealer must first register with IRS Energy Credits Online and submit a "time of sale report" for the EV you're buying. This means you can transfer the credit to the dealer as long as you believe you're eligible for that credit, but you may need to repay the IRS if your modified adjusted gross income is higher than the limits listed above.

For vehicle purchases made in 2023, the EV tax credit can only be applied to your taxes. If your tax bill is less than $7,500, you will not be refunded the difference, nor can the credit be applied to the following year's taxes. This too will change in 2024. The IRS says that if your tax liability is less than $7,500, the agency will not come after you to repay the difference.

Got all that? Good, because we're just getting started! The information in this article derives from the landmark Inflation Reduction Act of 2022, which we have painstakingly reviewed to save you the trouble. Let's take a closer look at all the ins and outs, including how to claim your tax credit and put that money back in your pocket.

How can I tell if an EV qualifies for a tax credit?

There are a few questions you'll need to answer to determine if an electric car qualifies for the new tax credits. The maximum buyer credit for new vehicles is $7,500, provided that several requirements are met. 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. Was the vehicle assembled in, and sourced from, the right countries?
2. Is the MSRP below the price cap?
3. Is my income below the income cap?
4. What if I'm leasing?
5. Are there tax credits for used EVs?
6. Which new vehicles qualify for the federal EV tax credit?
7. How do I claim the EV tax credit?
8. FAQs

1. Was the vehicle assembled in, and sourced from, the right countries?

The final assembly of the new vehicle must occur in North America (i.e., the U.S., Canada or Mexico). This is the gateway requirement for the federal EV tax credit — if the answer is no, the EV simply won't qualify (unless you're leasing, in which case please refer to the fourth question below). This rule went into effect on August 16, 2022, and affects vehicles purchased through 2032.

If the vehicle meets this requirement, you can think of the $7,500 federal EV tax credit as being split into two halves — critical battery minerals and battery components — each worth $3,750 and subject to requirements of its own. This has been the case since April 18, 2023; if you bought an EV in 2023 prior to April 18, you only have to worry about the gateway requirement of final assembly in North America in order to get the full $7,500 credit on your 2023 tax return. For those buying after April 18, we'll go through each half in turn, though please note that the EPA has already done the math on the percentages below to determine which cars are eligible — you won't have to figure it out yourself.

• Critical battery minerals: To qualify for this $3,750 credit, at least 40% of the critical minerals in the vehicle's 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.


• Battery components: To qualify for the remaining $3,750 credit, 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.

2. Is the MSRP below the price cap?

The following price caps by vehicle type became effective as of January 1, 2023 and refer specifically to the manufacturer's suggested retail price (MSRP). It does not include the manufacturer's destination charge, optional items added by the dealer, or taxes and fees. For example, if you're looking at an SUV with a $79,990 MSRP, and the destination fee takes it over $80,000, the vehicle is still eligible. However, if the vehicle is priced above the MSRP limit (for example, $82,000), but there's an incentive that brings it back down to under $80K, the vehicle would not qualify.

3. Is my income below the income cap?

The income 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 your tax filing status, the limits for a new vehicle are:

4. What if I'm leasing?

Leased electric cars or plug-in hybrids from dealerships are considered "commercial vehicles" under IRS regulations. This means that the full $7,500 tax credit will go to the company that leased it to you, which is usually the automaker's captive finance arm. In other words, the automaker itself effectively gets the benefit of the tax credit. Moreover, leased EVs and PHEVs are not subject to the major restrictions detailed above — there are no limitations regarding final assembly, battery sourcing or vehicle pricing, while the caps on buyer income are irrelevant because there is no purchase in the case of a lease.

There's also no obligation on the automaker's part to pass along any savings to you, but in practice, many automakers seem to be offering at least some kind of discount on EV leases as a direct result of this loophole. It probably won't last forever, so if you're interested in leasing vehicles such as the Hyundai Ioniq 5, Lucid Air, Toyota bZ4X and others, we recommend checking with your local dealership to see if there are loophole-driven lease discounts.

5. Are there tax credits for used EVs?

The tax credit for used EVs will be calculated based on either 30% of the vehicle's value or $4,000, whichever is less. As we mentioned earlier, there are no assembly requirements or battery component percentages for used EVs and PHEVs. The rules for used EVs went into 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
  As with new vehicles, the buyer's income is measured by modified adjusted gross income (MAGI). By filing status, the limits are:

• 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.

6. Which new vehicles qualify for the federal EV tax credit?

The following vehicles should qualify for the federal EV tax credit because they are assembled in North America and meet the critical minerals and battery component requirements.

It's also worth noting that the vehicle must be purchased for "original use" to qualify for the federal tax credit, meaning that the vehicle is for use by the taxpayer. You cannot buy the vehicle and then immediately resell it in hopes of getting the tax credit.

Our list is based on data from the U.S. Department of Energy that was current as of March 18, 2024, and affects new cars placed in service from January 1 through December 31, 2024. The list will likely change in the coming months and years to include more models. We will strive to keep our list current as vehicle manufacturers continue to submit the applicable vehicle information to the relevant government agencies. For those who purchased a vehicle in 2023, the list of eligible vehicles will vary. Take a look at the EPA's website and filter the list by the "placed in service" timeframe.

If you're interested in other possible EV credits, rebates, and manufacturer incentives, take a look at Edmunds' detailed list, here.

Source: Edmunds data, the IRS and the U.S. Department of Energy

7. 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. Those purchasing an eligible EV in 2023 can claim the credit when preparing their taxes in 2024.

Shoppers who purchase an eligible vehicle in 2024 have the option to transfer the EV tax credit to a dealership and use the credit as a discount on the car. The dealership should give you a copy of the "time of sale report" and confirmation the report was accepted. This document will be needed when filing your tax return. It is also important to verify that you meet the income requirements; otherwise, you may need to repay the IRS if your modified adjusted gross income is higher than the authorized limits.

For car purchases made in 2023, the EV tax credit can only be applied to your taxes and is nonrefundable. In 2024, however, the IRS said it will not seek repayment if your tax liability is less than $7,500. If you lease the vehicle, the credit goes to the lessor and may be used to reduce the price of the lease if the leasing party chooses to do so.

8. FAQs

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. From 2024 onward, you'll also have the option to transfer your federal EV tax credit to a qualified selling dealer and receive the amount of the credit as a discount on the car.

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 alongside the vehicle pricing and personal income requirements. 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.

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. Edmunds keeps a detailed list of state, local, federal and manufacturer incentives all in one place. 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 now doesn't mean it will continue indefinitely.

How about hydrogen fuel cell cars?
On paper, hydrogen fuel cell electric vehicles do qualify for incentives and are explicitly mentioned in the Inflation Reduction Act. However, at the time of this writing, no hydrogen-powered vehicles qualify for a tax credit for a vehicle purchase, likely due to not being built in North America. A work-around would be to lease the vehicle, in which case the automaker can — but is not obligated to — use the tax credit as a discount toward the lease. This can be a way to save some money on vehicles like the Toyota Mirai or Hyundai Nexo. Take a look at the U.S. Department of Energy's website to see the latest hydrogen laws and incentives.

Did the federal tax credit for electric cars change in 2023?
Yes, and the details depend on when you purchased an eligible electric car. If you bought it between August 17 and December 31, 2022, the final assembly location needed to take place in North America and was subject to the manufacturer sales cap that excluded Tesla, Toyota and General Motors.

Vehicles that were purchased between December 31, 2022, and April 17, 2023, not only need to have been assembled in North America but also came with buyer income requirements and pricing limitations, though the sales cap was removed. New vehicles purchased after April 18, 2023, are subject to the latest version of the EV tax credits bill, which includes the previous requirements as well as the new battery materials and manufacturing rules. You can see a full list of vehicles that are eligible for EV tax credits in this article.

Is there a tax credit for buying a Tesla in 2024?
Yes. Tesla customers are once again eligible for the new tax credit of up to $7,500 as of the beginning of 2023. That said, the vehicle must satisfy the manufacturing, pricing and income requirements discussed in this article.