How Does the Federal EV Tax Credit Work?
Understand how the federal EV tax credit works. Eligibility depends on key factors like your income, the car's price, and where the vehicle was assembled.
The federal Clean Vehicle Credit, shaped by the Inflation Reduction Act of 2022, is a tax incentive promoting the adoption of electric vehicles (EVs). The program offers a credit of up to $7,500 for buyers of qualifying new vehicles, though not all vehicles or buyers will qualify for the full amount.
The incentive is a dollar-for-dollar reduction of a buyer’s federal tax liability, meant to lower the upfront cost of an EV. The credit is available for purchases through 2032, but rules and vehicle eligibility are subject to change.
Determining Your Personal Eligibility
Your eligibility for the Clean Vehicle Credit depends on your modified adjusted gross income (MAGI). You may use the MAGI from either the year you take delivery of the vehicle or the preceding year, whichever is lower. Your MAGI must not exceed $300,000 for married couples filing jointly, $225,000 for heads of household, or $150,000 for all other filers.
The credit is non-refundable, meaning it can reduce your tax liability to zero, but no portion is returned as a cash refund. For example, if you qualify for a $7,500 credit but owe only $5,000 in taxes, your benefit is limited to $5,000. The remaining credit is forfeited and cannot be carried to future tax years.
The vehicle must be for personal use in the U.S., not for resale. You cannot claim the credit if you are a dependent on another’s tax return.
Vehicle Qualification Requirements
A new vehicle must meet strict criteria to be eligible. A primary requirement is the Manufacturer’s Suggested Retail Price (MSRP), which cannot exceed $80,000 for vans, SUVs, and pickup trucks, or $55,000 for other vehicles. This MSRP includes manufacturer-installed options but excludes destination fees.
The vehicle’s battery must have a capacity of at least 7 kilowatt-hours. The credit is split into two $3,750 parts based on sourcing. The first part requires a percentage of the battery’s critical minerals to be extracted or processed in the U.S. or a free-trade partner country.
The second $3,750 requires a percentage of battery components to be manufactured or assembled in North America. For 2025, the minimums are 50% for critical minerals and 60% for battery components; these thresholds increase in later years. A vehicle meeting only one rule gets a partial $3,750 credit.
The vehicle’s final assembly must be in North America. As requirements change, consumers should verify a model’s status on the official list at FuelEconomy.gov.
How to Claim the Credit
Buyers can receive the credit either as an immediate discount at the dealership or by claiming it on their annual federal tax return.
To receive an upfront discount, you can transfer the credit to a dealer registered with the IRS Energy Credits Online portal. At purchase, you must provide your Social Security or Taxpayer Identification Number and attest that you meet all eligibility requirements, including income limits.
The dealer then verifies the vehicle’s eligibility and applies the credit to reduce the purchase price or serve as a down payment. You are still required to file IRS Form 8936 with your tax return to report the transfer.
Alternatively, you can claim the credit when filing your taxes by completing IRS Form 8936. This form uses information from the seller’s report and is attached to your Form 1040 tax return to reduce your tax liability.
Rules for Used and Leased Vehicles
Incentives also exist for used clean vehicles through the Used Clean Vehicle Credit. This credit is 30% of the vehicle’s sale price, up to a maximum of $4,000. The eligibility requirements are more restrictive than for new vehicles.
To qualify for the used vehicle credit:
- The purchase price cannot exceed $25,000.
- The model year must be at least two years older than the calendar year of purchase.
- The vehicle must be bought from a licensed dealer.
- A buyer can only claim this credit once every three years.
The buyer’s MAGI limits are also lower: $150,000 for joint filers, $112,500 for heads of household, and $75,000 for other filers.
A person leasing a vehicle is not eligible to claim the Clean Vehicle Credit, as the credit belongs to the leasing company. Some leasing companies may pass this benefit to customers through lower monthly payments, but this is at the company’s discretion and is not required.