Electric Vehicle Tax Credit 2023: Who Qualifies?

The federal government offers a tax incentive known as the new clean vehicle credit for taxpayers who purchase qualifying electric vehicles (EVs) or fuel cell vehicles (FCVs). The maximum credit available is $7,500, providing a direct, dollar-for-dollar reduction of a taxpayer’s federal tax liability.

The specific amount of the credit a buyer can receive depends on the vehicle meeting criteria established by the Inflation Reduction Act of 2022. These rules govern not only the characteristics of the vehicle itself but also include specific requirements that the buyer must meet to be eligible.

Buyer Eligibility Requirements

To qualify for the clean vehicle credit, a buyer must meet several personal eligibility standards, primarily income limitations. Your modified adjusted gross income (MAGI) cannot exceed $300,000 if you are married and filing a joint tax return, $225,000 if you file as head of household, or $150,000 for all other filing statuses. MAGI is your adjusted gross income with certain deductions added back.

A provision allows taxpayers to use the lesser of their MAGI from either the year they take delivery of the vehicle or the preceding year. This means you can still qualify using the prior year’s income if it was below the cap.

Beyond income, the car must be purchased for your own use and not for resale. The vehicle must also be used predominantly within the United States.

Individuals who lease an EV do not qualify to claim the credit. The tax incentive goes to the owner of the vehicle, which in a lease agreement is the leasing company or manufacturer. While some leasing companies may choose to pass the savings on to the consumer through lower monthly payments, the lessee cannot directly claim the tax credit on their personal tax return.

Vehicle Eligibility Requirements

For a vehicle to be eligible, it must satisfy requirements including a Manufacturer’s Suggested Retail Price (MSRP) cap. For vans, sport utility vehicles, and pickup trucks, the MSRP cannot exceed $80,000. For all other vehicle types, such as sedans, the cap is $55,000. The MSRP for this purpose is the base retail price suggested by the manufacturer, plus the price of any accessories or optional equipment physically attached to the vehicle at the time of delivery to the dealer.

The vehicle must have a battery with a capacity of at least 7 kilowatt-hours (kWh) and a gross vehicle weight rating of less than 14,000 pounds. The vehicle’s final assembly must occur in North America. Buyers can verify a vehicle’s final assembly location using the VIN Decoder tool from the National Highway Traffic Safety Administration (NHTSA) or by checking the window sticker.

The $7,500 credit is divided into two $3,750 parts tied to battery sourcing. To receive the first $3,750, the battery must meet a critical minerals requirement. For the second $3,750, it must meet a battery components requirement. A vehicle can qualify for one part but not the other, resulting in a $3,750 credit.

Rules also exclude vehicles with battery components or critical minerals from a “Foreign Entity of Concern” (FEOC). As of 2024, vehicles are ineligible if battery components were made by a FEOC. Beginning in 2025, this expands to exclude vehicles with critical minerals processed by a FEOC. The list of qualifying vehicles changes, so consult the official list at FuelEconomy.gov before purchasing.

Credit for Used Clean Vehicles

A tax credit is also available for used clean vehicles. Qualified buyers can receive a credit of 30% of the sale price, up to a maximum of $4,000. The used vehicle must be purchased from a dealer for $25,000 or less. The vehicle’s model year must be at least two years earlier than the calendar year in which you purchase it; for example, a car bought in 2025 must be a 2023 model or older. The income limitations are lower than for the new vehicle credit, and this incentive can also be transferred to a dealer for an immediate discount.

Required Information and Documentation

To claim the clean vehicle credit, you must receive a report from the seller at the time of purchase. The dealer is required to give you this report and submit the same information to the IRS. If the seller fails to provide this report, the vehicle is not eligible for the credit. The report must include the seller’s and your name and taxpayer ID number. It also details vehicle information, such as the VIN, battery capacity, date of sale, and the final sale price. You will use the information from the seller report to complete IRS Form 8936, Clean Vehicle Credits, which is the tax form you will file with your return to claim the credit.

How to Claim the Credit

A change to the program allows buyers to transfer the clean vehicle credit directly to a registered dealer at the point of sale. This provides an immediate discount on the vehicle’s purchase price, functioning like a rebate, so you do not have to wait until filing taxes to receive the benefit. If you transfer the credit but are later found to be ineligible because you exceed the income limitations, you will have to repay the amount to the IRS when you file your tax return.

Alternatively, if you do not transfer the credit, you can claim it on your annual tax return. The clean vehicle credit is nonrefundable, which means it can reduce your tax liability to zero, but you will not receive any portion back as a cash refund if the credit amount exceeds what you owe. For example, if you are eligible for a $7,500 credit but your tax liability is only $5,000, the credit will eliminate your tax bill, but you will not receive the remaining $2,500. Regardless of whether you transfer the credit or claim it on your return, you must file Form 8936 with your Form 1040.