Understanding the $7,500 Tax Credit for Buying an Electric Vehicle

Electric vehicles (EVs) are becoming more popular, with their share of the U.S. vehicle market rising from 5.9% in 2022 to 7.6% in 2023, according to Kelley Blue Book. To encourage EV purchases, the federal government offers a tax credit of up to $7,500 for eligible vehicles under the Clean Vehicle Tax Credit, created by the Inflation Reduction Act. Here are answers to some common questions about the credit.Which Vehicles Qualify for the Credit?

To qualify for the full $7,500 credit, several criteria must be met:

• The vehicle must be a new plug-in electric or fuel cell vehicle.
• It must have a battery capacity of at least seven kilowatt hours.
• It must meet critical mineral and battery component requirements (effective for vehicles placed in service on or after April 18, 2023). If the vehicle meets only one requirement, the buyer is eligible for a $3,750 credit.
• The vehicle must undergo final assembly in North America and have a gross vehicle weight rating of less than 14,000 pounds.
• The vehicle must be purchased for personal use, not resale, and primarily used in the U.S.

Are the Most Expensive EVs Eligible?

No. The manufacturer's suggested retail price (MSRP) of the vehicle cannot exceed:

• $80,000 for vans, sport utility vehicles (SUVs), and pickup trucks.
• $55,000 for other vehicles.

Are There Income Limits for Buyers?

Yes. The credit is available only to taxpayers whose modified adjusted gross income (MAGI) does not exceed:

• $300,000 for married couples filing jointly.
• $225,000 for heads of households.
• $150,000 for single filers.

How Is the Credit Claimed?

You can claim the credit by filing Form 8936 when you file your tax return. Alternatively, starting in 2024, you can choose to transfer the credit to an eligible dealer, reducing the vehicle's purchase price by the credit amount. If you don't transfer the credit, it's nonrefundable — meaning you can't receive more in credit than you owe in taxes, and you can't carry over any excess credit to future tax years.

Does a Used EV Qualify for a Tax Credit?

Yes, but the credit is smaller than for new vehicles, and the income limits are lower. Beginning January 1, 2023, if you purchase a qualified used EV or fuel cell vehicle from a licensed dealer for $25,000 or less, you may be eligible for a credit of up to $4,000. To qualify, your MAGI must be:

• $150,000 or less for married couples filing jointly.
• $112,500 or less for heads of households.
• $75,000 or less for single filers.

Check Before You Buy

The EV tax credit can be a powerful incentive, but it's important to verify that you and the vehicle meet all the eligibility requirements. Contact us for assistance to ensure you qualify.