Electric car tax credits: Here's how to save when you buy an EV

Electric vehicles (EVs) rev up savings just as much as they help drive down climate change. Thanks to EV tax incentives and the overall lower maintenance costs of electric vehicles (EVs), driving electric makes sense for your climate consciousness and for your bank account. 

Available at the federal, state, and local levels, EV tax credits can save you thousands of dollars on the purchase or lease of an EV. These incentives, aimed at promoting EV adoption, won’t be around forever. Navigating your eligibility can be confusing as these incentives and policies change relatively often. Let’s dive deeper into the EV tax credits available to you today so you can get the most out of your investment.

The Clean Vehicle Credit offers a tax credit of up to $7,500 for the purchase or lease of new qualified plug-in electric vehicles and up to $4,000 or 30% of the sale price (whichever is lower) for used EVs. This credit can be transferred to you at the point of sale as a discount on your purchase price, or you can receive the credit when you file taxes. 

The Inflation Reduction Act (IRA) of 2022 altered the Qualified Plug-in Electric Drive Motor Vehicle Credit (now known as the Clean Vehicle Credit) for electric vehicles purchased from 2023 to 2032. Your car’s purchase price, date of purchase, income, and where the car and battery are manufactured impact eligibility for the credit. 

EV tax credit criteria for new vehicles 

• Production location: The 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 requirements: As of April 18, 2023, your EV must meet additional requirements regarding where the vehicle’s battery components are sourced and manufactured to earn the credit. 

EV tax credit criteria for used vehicles

• Model year: The model year is at least two years earlier than the calendar year you’re buying it.

• Vehicle pricing: It costs less than $25,000.

• Resale history: The vehicle must not have been previously transferred after August 16, 2022.

• Your income: Eligibility is based on your adjusted gross income. Limits include a joint tax return of less than $150,000, a head of household tax return of less than $112,500, or a single taxpayer return of less than $75,000.

EV tax credit for older vehicles

EVs purchased in 2022 or before may be eligible for a tax credit of up to $7,500 but are subject to different qualification requirements than newer purchases. 

• $2,917 tax credit for a vehicle with a battery capacity of at least 5 kilowatt hours (kWh)

• Plus $417 for each kWh of capacity over 5 kWh.

For detailed information on your EV’s eligibility, plug in your vehicle identification number (VIN) to the Alternative Fuels Data Center website’s VIN decoder tool to see if it meets the criteria.

Claiming the federal electric vehicle tax credit

Once you buy or lease an electric car, you must fill out IRS Form 8936 and report its proper credit on Form 1040 (Individual Income Tax Return). 

State and local EV incentives can create even more savings on your EV purchase. Even if your state doesn’t offer any tax credits or rebates for EVs, your utility company might. We’ve compiled a list of state incentives below, but The Department of Energy’s Alternative Fuels Data Center has detailed information on incentives from states, utilities, and private organizations.

State EV tax credits

Between the reduced ownership and maintenance costs, EVs usually cost less to own than gas-powered vehicles. Pairing your EV with solar panels can boost those savings even more. Use the EnergySage Marketplace to compare custom quotes from vetted installers and find a system that fits your needs at the right price. Note that you intend to charge your EV with your solar panel system and go solar with confidence.