Do You Get a Tax Credit for Buying a Car?

Federal tax credits offer financial incentives for environmentally friendly vehicles. These federal incentives aim to encourage consumers to adopt cleaner transportation options. Understanding the specific requirements for these credits before a purchase is important, as eligibility hinges on various factors concerning the vehicle, the buyer, and the seller.

Federal Tax Credit for New Clean Vehicles

To be eligible for the federal tax credit for new clean vehicles, the vehicle must meet specific criteria. Its gross vehicle weight rating must not exceed 14,000 pounds, and its final assembly must occur in North America to qualify for any portion of the credit.

Vehicle requirements also relate to battery components and critical minerals. A percentage of the battery’s components must be manufactured or assembled in North America, and a percentage of the battery’s critical minerals must be extracted or processed in the United States or a country with a free trade agreement with the U.S., or recycled in North America. These percentages increase annually, meaning a vehicle that qualifies one year may not qualify the next, or may qualify for a reduced credit amount. The vehicle’s manufacturer suggested retail price (MSRP) also has limits; for vans, sport utility vehicles, and pickup trucks, the MSRP cannot exceed $80,000, while for other vehicle types, the limit is $55,000.

The buyer must also meet specific adjusted gross income (AGI) limitations. For married couples filing jointly, the AGI cannot exceed $300,000. Heads of household face an AGI limit of $225,000, and all other filers have an AGI limit of $150,000. These income thresholds are based on the modified AGI for the current tax year or the preceding tax year, whichever is less.

The sale must be conducted by a qualified dealer. The dealer must be licensed to sell motor vehicles and register the sale with the Internal Revenue Service (IRS). The dealer is required to provide the buyer with a clean vehicle tax credit report, which includes information like the vehicle identification number (VIN), battery capacity, and the maximum credit amount. Buyers should confirm with the dealer that the vehicle meets all requirements and that they can provide the necessary documentation before finalizing the purchase.

Federal Tax Credit for Used Clean Vehicles

A federal tax credit is available for qualifying used clean vehicles. This incentive aims to make electric vehicle ownership more accessible through the secondary market. Eligibility for this credit has specific requirements concerning the vehicle’s age, sales price, and gross vehicle weight rating.

For a used vehicle to qualify, it must be at least two model years older than the calendar year in which it is purchased. For example, a vehicle purchased in 2025 must be a 2023 model year or older. The sales price of the used clean vehicle cannot exceed $25,000. The used vehicle must have a gross vehicle weight rating of less than 14,000 pounds.

Buyer requirements for the used clean vehicle credit include specific adjusted gross income (AGI) limitations, which are generally lower than those for new vehicles. For married individuals filing jointly, the AGI cannot exceed $150,000. Heads of household have an AGI limit of $112,500, and all other filers are limited to $75,000. The buyer also cannot be the original owner of the vehicle. A taxpayer cannot have claimed another used clean vehicle credit within the three-year period ending on the date of the purchase.

The sale of a used clean vehicle must be transacted by a dealer. Private party sales do not qualify for this credit. The dealer must be licensed and registered with the IRS to report the sale. The dealer must provide the buyer with a clean vehicle tax credit report at the time of sale. This report verifies eligibility and the maximum credit amount. Buyers should ensure they receive this documentation and verify all vehicle and buyer eligibility criteria with the dealer before completing the purchase.

Claiming Your Vehicle Tax Credits

Claiming a federal vehicle tax credit involves specific procedural steps and forms. Form 8936, Clean Vehicle Credits, is the primary document for claiming either the new or used clean vehicle credit. This form is available from the Internal Revenue Service (IRS) website.

To complete Form 8936, you will need information from the vehicle purchase. This includes the vehicle identification number (VIN), the date the vehicle was purchased, qualified dealer details, and the final sales price. These details are entered into Form 8936 to calculate the credit amount.

Once completed, Form 8936 is filed with your annual federal income tax return, typically Form 1040. The calculated clean vehicle credit reduces your total tax liability. These credits are generally nonrefundable, meaning they can reduce your tax liability to zero but will not result in a refund beyond the tax owed.

Retain all sales documentation and dealer disclosures for your tax records. This documentation includes the buyer’s report from the dealer, the purchase agreement, and other receipts. These records serve as proof of eligibility if the IRS requires verification.