Electric vehicles (EVs) are becoming increasingly popular due to their environmental benefits and long-term cost savings. To encourage adoption, the U.S. government offers EV tax credits, reducing the cost of buying a new or used electric car.
This guide explains everything you need to know about federal and state EV tax credits, including eligibility, credit amounts, and how to claim them.
What Are EV Tax Credits?
EV tax credits are financial incentives provided by the federal and state governments to reduce the cost of purchasing an electric vehicle. These credits lower your tax liability, making EVs more affordable.
Types of EV Tax Credits
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Federal EV Tax Credit – Up to $7,500 for new EVs and $4,000 for used EVs.
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State EV Incentives – Additional rebates, tax credits, or discounts depending on your location.
Federal EV Tax Credit (Clean Vehicle Credit)
The Inflation Reduction Act (IRA) of 2022 updated the federal EV tax credit, now called the Clean Vehicle Credit. Here’s what you need to know:
1. New EV Tax Credit (Up to $7,500)
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Credit Amount: Up to $7,500, depending on battery components and critical minerals sourcing.
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Eligibility Requirements:
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Income limits:
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Single filers: ≤ $150,000
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Head of household: ≤ $225,000
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Married filing jointly: ≤ $300,000
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Vehicle MSRP limits:
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SUVs, trucks, vans: ≤ $80,000
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Sedans, hatchbacks, other cars: ≤ $55,000
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Must be purchased new (not leased).
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Final assembly must be in North America.
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2. Used EV Tax Credit (Up to $4,000 or 30% of Sale Price)
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Credit Amount: $4,000 or 30% of the sale price (whichever is lower).
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Eligibility Requirements:
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Vehicle price must be ≤ $25,000.
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Model must be at least 2 years old.
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Income limits:
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Single filers: ≤ $75,000
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Head of household: ≤ $112,500
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Married filing jointly: ≤ $150,000
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3. Leased EVs – Commercial Clean Vehicle Credit
If you lease an EV, the dealer may claim the credit and pass savings to you via lower lease payments.
How to Claim the EV Tax Credit
To claim the federal EV tax credit:
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Buy an eligible EV (check the IRS website for approved models).
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Submit IRS Form 8936 with your tax return.
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Keep all purchase documents (sales contract, VIN, battery details).
Note: Starting in 2024, buyers can transfer the credit to the dealer for an instant discount.
State EV Tax Credits & Incentives
Many states offer additional incentives, such as:
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California: Up to $7,500 in rebates (Clean Vehicle Rebate Project).
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New York: Up to $2,000 rebate + reduced registration fees.
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Colorado: $5,000 tax credit for new EVs.
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Texas: $2,500 rebate for certain EVs.
Check your state’s energy department website for local incentives.
EV Tax Credit FAQs
1. Which EVs Qualify for the $7,500 Credit?
Popular models include:
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Tesla Model 3, Model Y (if under MSRP cap)
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Ford F-150 Lightning
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Chevy Bolt EV/EUV
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Volkswagen ID.4
2. Can I Claim Both Federal and State Credits?
Yes! You can combine federal and state incentives for maximum savings.
3. What If My Tax Liability Is Less Than the Credit?
The federal EV tax credit is non-refundable, meaning it only reduces your tax bill to zero (no cash back). However, starting in 2024, dealers can apply the credit at purchase.
4. Do Leased EVs Qualify?
Yes, but the leasing company claims the credit and may lower your payments.
Conclusion
EV tax credits can save you thousands of dollars on an electric vehicle. Whether you’re buying new or used, federal and state incentives make EVs more affordable than ever.
Before purchasing, check IRS eligibility rules and explore local rebates to maximize savings. With the growing shift toward clean energy, now is a great time to take advantage of EV tax credits!
Need help finding an eligible EV? Visit the U.S. Department of Energy’s website for a full list of qualifying vehicles.
By understanding EV tax credits, you can make an informed decision and enjoy the benefits of driving electric while keeping more money in your pocket.
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