Electric car tax credits: What's available?

On average, the upfront cost of an electric vehicle is usually higher than a conventional gas-powered car. There are different types of EVs, including an all-electric (AEV), aka battery electric vehicle (BEV) or zero-emissions vehicle (ZEV), or a plug-in hybrid (PHEV), which runs partially on battery power and partially on gasoline. There are several federal and state electric car tax credits and incentives that can lower the upfront cost so EV drivers can take advantage of fuel savings and reduced emissions.

The Inflation Reduction Act (IRA) of 2022 changed things a bit regarding the federal tax credit for EVs. It’s not as straightforward as it used to be with the Qualified Plug-in Electric Drive Motor Vehicle Credit, now known as the Clean Vehicle Credit. Various factors roll out over time, impacting eligibility for the credit, including the car’s purchase price, date of purchase, income, and where the car and its battery are manufactured.

As of January 1, 2023, the following criteria apply to new EVs to determine whether or not it qualifies for the federal tax credit:

• Production location: final assembly of the vehicle must take place in North America.

• Vehicle pricing: vans, SUVs, and pickup trucks must have a manufacturer-suggested retail price (MSRP) at or below $80,000. All other vehicles (e.g. sedans and compact cars) can’t have an MSRP above $55,000.

• Your income: Eligibility is based on your adjusted gross income. Limits include a joint tax return of less than $300,000, a head of household tax return of less than $225,000, or a single taxpayer return of less than $150,000.

• Critical mineral and battery component limitations: currently delayed until the U.S. Treasury Department weighs in on rules and is expected to roll out in March 2023; additional requirements for where the vehicle’s battery components are sourced and manufactured must be met to earn the credit. Automakers and other countries are working to determine the exact implications. The Korean government has argued that the current stipulations outlined in the IRA go against the free trade agreement, so it shouldn’t stand up. It remains to be seen precisely how this guideline will play out.

Purchase date implications

If you purchased your EV in 2022, there are different amounts you may qualify for based on the purchase date and the car you purchased. Learn more about other factors impacting EV incentives, including the EV’s purchase date and the battery component requirements.

Manufacturer sales cap

Previously, there were caps placed on manufacturers, meaning certain EV brands no longer qualified for EV credits. For example, Tesla and Chevrolet had met those caps. Still, as of January 1, 2023, that requirement is no longer applicable. As long as vehicles from those manufacturers meet the other requirements, including the price cap and final assembly location, they’re now eligible for the federal EV tax credit. So, a new Chevrolet Bolt EV, which in 2022 wouldn’t receive the federal tax credit, would likely be eligible in 2023 as long as it's not loaded with upgrades to push it over $55,000.

Tax incentives for used vehicles

The IRA added credits for up to $4,000 or 30 percent of the sales price (the lower of the two) as long as it meets certain criteria:

• the model year is at least two years earlier than the calendar year in which you’re buying it

• costs less than $25,000

• it’s the first resale of the EV (the first time it’s being sold as a used vehicle)

Understanding which vehicles are eligible

Because of the various guidelines added through the IRA, it’s not always straightforward to know if a certain EV qualifies for the federal tax credit. Here are some popular automobile manufacturers and some general guidance on if they may qualify:

• Audi: Q5 PHEV may qualify if it’s not over $80,000; e-tron models are manufactured in Belgium, so don’t qualify

• BMW: 330e may qualify; other models usually won’t meet pricing cap or manufacturing location criteria

• Cadillac: The Lyriq was previously not eligible because of the manufacturer sales cap, but beginning in 2023 it is eligible again as long as it falls below the price cap

• Chrysler: The Pacifica PHEV usually will qualify

• Ford: The popular Mustang Mach-E usually will qualify

• Hyundai: popular Ioniq 5 EV is no longer eligible because they’re manufactured in South Korea

• Kia: EV6 and Niro models aren’t eligible because they’re manufactured in South Korea

• Nissan: the popular Nissan Leaf EV is usually eligible

• Rivian: previously eligible because it is made in the U.S., but with the new price cap, Rivians won’t be eligible

• Tesla: previously not eligible because of the manufacturer sales cap, specific Tesla Model 3 and Model Y vehicles may be eligible in 2023; many Teslas may still not be eligible because of the price cap

• Toyota: no Toyota models are currently eligible

• Volkswagen: the ID.4 was previously not eligible, but since it’s now being manufactured in Tennessee, newer versions should qualify

• Volvo: popular S60 EV is usually eligible

For detailed information, you can always plug in a vehicle identification number (VIN) to the Alternative Fuels Data Center website’s VIN decoder tool in order to see if it meets the criteria.

Aside from federal incentives, there are electric car tax credits and rebates at the state level that you can use to save further on an electric vehicle purchase and EV charger installation at your home (see an overview of available EV charger incentives). This list is of state incentives and does not include utility or private incentives. The Department of Energy’s Alternative Fuels Data Center also has information on incentives from states, utilities, and private organizations.

To claim the federal electric vehicle tax credit once you buy an electric car, you'll need to fill out IRS Form 8936 and report the proper credit from it on Form 1040 (Individual Income Tax Return). The IRS gives detailed instructions for how to fill out these forms on their website, but we've broken down some of the main points here:

• You’ll need your electric car’s make, model, and vehicle identification number (VIN)

• You will enter the date the car was placed in service (when you took delivery and started driving it)

• For vehicles with at least four wheels, you’ll enter the credit amount for your vehicle's make and model found on the IRS site

• Your eligible tax credit also depends on your EV’s manufacturer.

  • For Tesla, the credit is not available for vehicles acquired after December 31, 2019. Beginning in 2023, Teslas that meet the price requirements will be eligible again.

  • For GM, the credit is not available for vehicles acquired after March 31, 2020. Beginning in 2023, GM electric vehicles that fall under the price cap will be eligible again.

• It’s important to note that EV tax credits are likely to change based on the IRA guidelines. We’ll keep you up to date on the latest information and you can always confirm with the IRS website or a tax professional.

There are additional components of the Clean Vehicle Credit rolling out as part of the IRA legislation. For example, eventually you’ll be able to transfer the credit to your car dealer or seller and claim it at the point of purchase to get a reduced price. However, this doesn’t roll out until after December 31, 2023.

Overall, EVs usually cost less to own that gas-powered vehicles because of the reduced ownership and maintenance costs. Additionally, there are many ways to save on EV charging costs over time, such as taking advantage of special rates like time-of-use rates or off-peak charging programs with your utility company. Going solar is one of the best long-term solutions to lower your home EV charging costs. You can use the EnergySage Marketplace to compare several quotes from pre-screened installers, helping you find a system that fits your needs at the right price.