Electric Car Tax Credits for New and Used Vehicles

The United States government offers tax incentives to promote the adoption of electric vehicles as part of a national strategy focused on energy and environmental goals. By offering financial motivations, the government aims to accelerate the transition from internal combustion engines to cleaner technologies. This approach is designed to make electric vehicles more financially accessible, and the tax benefits are structured to evolve with changes in technology and policy.

Types of Federal Electric Vehicle Credits

The federal government offers two primary tax credits for consumers purchasing electric vehicles. The New Clean Vehicle Credit is for the purchase of a qualifying new vehicle and has a maximum value of up to $7,500. The final amount depends on the vehicle meeting several requirements.

A separate incentive, the Used Clean Vehicle Credit, targets the secondary market to make electric transportation more affordable. This credit offers a maximum of $4,000, or 30% of the vehicle’s sale price, whichever is less. By providing a credit for pre-owned vehicles, this policy acknowledges that the used car market is a major entry point for many households.

Qualifying for the New Clean Vehicle Credit

Eligibility for the New Clean Vehicle Credit depends on a combination of rules governing the buyer’s income, the vehicle’s price, and its manufacturing origins. These requirements are detailed, and prospective buyers should review them carefully. Failing to meet a criterion can result in a partial credit or a complete loss of the incentive.

Buyer Income Limits

A buyer’s eligibility is determined by their Modified Adjusted Gross Income (MAGI), which varies by tax filing status. For married couples filing a joint tax return, the MAGI must not exceed $300,000. The limit for those filing as head of household is $225,000, and for all other filers, the cap is $150,000. These income caps are designed to direct the benefit toward middle-income households.

Vehicle Price Caps

The vehicle must fall under a price ceiling based on its Manufacturer’s Suggested Retail Price (MSRP). For vans, sport utility vehicles, and pickup trucks, the MSRP cannot exceed $80,000. All other new clean vehicles, such as sedans, have a price cap of $55,000. The MSRP includes factory-installed options but excludes dealer-installed accessories or destination fees.

North American Final Assembly

A vehicle must undergo its final assembly in North America to qualify. The Department of Energy maintains a list of qualifying vehicles. Buyers can also verify a specific vehicle’s final assembly location by entering its Vehicle Identification Number (VIN) on the FuelEconomy.gov website.

Battery Capacity and Sourcing Requirements

The $7,500 credit is divided into two parts, and the vehicle’s battery must have a capacity of at least 7 kilowatt-hours. The first $3,750 is tied to the battery’s critical minerals, which must have a percentage of their value extracted or processed in the U.S. or a free-trade agreement partner. The second $3,750 is dependent on the battery’s components, which must have a percentage of their value manufactured or assembled in North America. A vehicle meeting only one of these sourcing requirements is eligible for a partial credit of $3,750.

A vehicle is ineligible if its battery components are made by a Foreign Entity of Concern (FEOC). The same disqualification applies if its battery contains critical minerals sourced from a FEOC. These prohibitions are intended to secure the domestic supply chain and significantly impact the list of qualifying vehicles.

Qualifying for the Used Clean Vehicle Credit

The criteria for the Used Clean Vehicle Credit have different income and vehicle price limits than the new vehicle credit. These rules are tailored to make previously owned electric vehicles a more viable option for budget-conscious buyers.

Buyer Income Limits

The income thresholds for the used vehicle credit are lower than for the new vehicle credit. For married couples filing jointly, the Modified Adjusted Gross Income limit is $150,000. The cap for heads of household is $112,500, and for all other filing statuses, the limit is $75,000.

Vehicle Sale Price

To be eligible for the used credit, the final sale price of the vehicle must be $25,000 or less. This price cap applies to all types of used clean vehicles, regardless of their original MSRP or classification.

Vehicle Requirements

The vehicle’s model year must be at least two years earlier than the current calendar year. For example, a vehicle purchased in 2025 must have a model year of 2023 or older to qualify. The vehicle must also be acquired for personal use and not for resale.

Sale Requirements

The sale must be conducted by a licensed dealer, as private-party sales are not eligible for the credit. The dealer must be registered with the IRS Energy Credits Online system to report the sale and provide the necessary documentation to the buyer.

Claiming Your Federal EV Credit

Buyers have two pathways to receive the credit: as an immediate discount at the point of sale or as a reduction on their annual tax return. Both options require coordination between the buyer, the seller, and the IRS.

Transferring the Credit at the Point of Sale

Buyers can transfer their credit to the dealership at the time of purchase, applying it as an immediate discount. To do this, the buyer must attest to their eligibility, and the dealer verifies the vehicle’s status through the IRS Energy Credits Online portal before applying the credit to the sale. This provides an upfront financial benefit, reducing the amount that needs to be financed or paid in cash.

If a buyer is later found to be ineligible for a credit they claimed, for reasons such as exceeding the income limit, they may be required to repay the amount to the IRS when filing their taxes.

Claiming the Credit on Your Tax Return

Alternatively, a buyer can claim the credit on their annual federal income tax return by filing IRS Form 8936. The dealer must provide the buyer with a seller’s report at the time of sale containing the information needed to complete this form. This includes the VIN, battery capacity, and the dealer’s tax information.

The credit is nonrefundable, meaning it can reduce a taxpayer’s liability to zero, but no portion is paid out as a refund beyond the tax owed. For example, if a taxpayer with a $5,000 tax liability receives a $7,500 credit, their bill is reduced to zero, but they do not receive the remaining $2,500. The point-of-sale transfer option avoids this limitation, as the full credit amount is applied to the vehicle’s price regardless of the buyer’s ultimate tax liability.