How to Claim the Tax Credit for a New Car Purchase
Understand the layered eligibility rules for the clean vehicle tax credit to determine how, and if, you can claim the savings on your new car.
The federal government offers a tax incentive, known as the Clean Vehicle Credit, for the purchase of new qualifying vehicles. This credit, governed by Internal Revenue Code Section 30D, is designed to encourage the adoption of clean energy vehicles. To claim the credit, a buyer’s personal financial situation, the vehicle’s attributes, and the steps taken at the time of sale must all meet the requirements laid out by the Internal Revenue Service (IRS).
Determining Your Personal Eligibility
A primary factor for the Clean Vehicle Credit is your income. The IRS uses Modified Adjusted Gross Income (MAGI) to determine eligibility. The income limits are tied to your tax filing status: for married couples filing jointly, the MAGI must not exceed $300,000; for heads of household, the limit is $225,000; and for all other filers, the cap is $150,000.
A provision allows you to use the MAGI from either the year you take delivery of the vehicle or the preceding year, whichever is lower. You also cannot be claimed as a dependent on another person’s tax return. The vehicle purchase must be for your own use and not for resale, and the vehicle must be used primarily within the United States.
Vehicle Qualification Requirements
MSRP Limit
For a vehicle to be eligible, its Manufacturer’s Suggested Retail Price (MSRP) cannot exceed certain limits. The cap is $80,000 for vans, sport utility vehicles, and pickup trucks. For all other types of vehicles, the MSRP must be $55,000 or less.
This price is the retail price suggested by the manufacturer, including options or accessories installed at the factory. Accessories or optional equipment added by the dealership are not included in the price cap calculation.
Final Assembly
A vehicle must undergo its final assembly in North America to qualify for the credit. The Department of Energy’s FuelEconomy.gov website has a tool where you can enter a vehicle’s VIN to confirm its final assembly location. It is best to verify the specific vehicle you intend to purchase using its unique VIN before you finalize the sale.
Battery Capacity and Sourcing
The maximum credit of $7,500 is divided into two separate components of $3,750, each tied to the vehicle’s battery. A vehicle can qualify for the full amount, half, or no credit, depending on whether it meets specific sourcing requirements.
To qualify for the first $3,750, at least 60% of the value of the battery components must be manufactured or assembled in North America for 2025. This percentage is scheduled to increase annually until it reaches 100% in 2029.
To qualify for the second $3,750, a percentage of the value of the critical minerals in the battery must be extracted or processed in the United States, a U.S. free-trade agreement partner, or recycled in North America.
A vehicle is ineligible for the credit if any of its battery components were manufactured or assembled by a Foreign Entity of Concern (FEOC). As of 2025, this restriction also excludes vehicles with critical minerals sourced from an FEOC.
The most practical way to verify a vehicle’s eligibility for the battery-related credits is to consult the official list of qualifying vehicles on the FuelEconomy.gov website. This resource from the IRS and Department of Energy is the most reliable tool for confirming if a vehicle qualifies for a full or partial credit.
The Process for Claiming the Credit
The procedure for claiming the credit begins at the dealership. The dealer must be registered with the “IRS Energy Credits Online” portal. At the time of sale, the registered dealer must provide you with a copy of a seller’s report, which contains information about the transaction, including your name and taxpayer identification number, the vehicle’s VIN, and the sale price.
The dealer is required to submit this same information to the IRS electronically. Without this official report being filed, you will be unable to claim the credit.
Transferring the Credit at Point of Sale
The most direct way to benefit from the credit is to transfer it to the dealer at the point of sale. This option allows you to receive an immediate benefit equivalent to the credit amount, which can be applied as a down payment or received as a cash rebate. To do this, you must attest at the dealership, under penalty of perjury, that you believe you meet all the personal eligibility requirements, including the income limitations.
If you transfer the credit but your MAGI exceeds the legal threshold when you file your taxes for that year, you will be required to repay the amount of the credit to the IRS. You must have a high degree of confidence in your income eligibility before deciding to transfer the credit.
Claiming the Credit on Your Tax Return
As an alternative to transferring the credit, you can claim it on your annual tax return. This process involves completing and filing IRS Form 8936, “Clean Vehicle Credits,” with your Form 1040. You will use the information from the seller’s report provided by the dealership to complete Form 8936.
When claimed on your tax return, the Clean Vehicle Credit is non-refundable. This means the credit can reduce your tax liability to zero, but you cannot receive any portion of it back as a refund beyond what you owe in taxes. For example, if you are eligible for a $7,500 credit but your total tax liability for the year is only $5,000, you will only be able to use $5,000 of the credit.