How to Get the Federal Tax Credit for Electric Vehicles

The federal government provides the Clean Vehicle Credit to encourage the adoption of electric vehicles. This tax incentive can reduce a buyer’s federal tax liability or provide an immediate discount at the time of purchase. While the maximum credit for new vehicles is $7,500, separate credits are also available for used and leased vehicles. The availability and amount of the credit are subject to specific requirements for the buyer, the vehicle, and the transaction itself. These rules, established by the Inflation Reduction Act, contain stipulations regarding income levels, vehicle price, and manufacturing origins.

Determining Buyer Eligibility

A primary factor in determining eligibility for the Clean Vehicle Credit is the buyer’s Modified Adjusted Gross Income (MAGI). The IRS sets specific income thresholds that a taxpayer cannot exceed to qualify. For individuals with a single filing status, the MAGI limit is $150,000. The limit increases to $225,000 for those filing as head of household and is set at $300,000 for married couples filing a joint tax return.

A notable provision in the tax law allows buyers some flexibility regarding this income limitation. A taxpayer can use the lesser of their MAGI from the year they take delivery of the vehicle or their MAGI from the preceding year. This rule can be particularly advantageous for individuals whose income fluctuates.

Beyond the income requirements, several other conditions must be met by the purchaser. The individual buying the vehicle cannot be claimed as a dependent on another person’s tax return. The vehicle must be acquired for the buyer’s own use and not for the purpose of resale. The vehicle must also be used primarily within the United States.

Identifying an Eligible Vehicle

For a vehicle to qualify for the Clean Vehicle Credit, it must meet several criteria, starting with the Manufacturer’s Suggested Retail Price (MSRP). The MSRP for vans, sport utility vehicles, and pickup trucks cannot exceed $80,000. For all other vehicle categories, such as sedans, the cap is lower, at $55,000. This price limitation applies to the base model plus any optional equipment added by the manufacturer.

Another requirement relates to its power source. The vehicle must be propelled by an electric motor that draws electricity from a battery with a capacity of at least 7 kilowatt-hours (kWh). Furthermore, the vehicle must be capable of being recharged from an external source of electricity.

The total $7,500 credit for new vehicles is divided into two parts, each worth $3,750, based on the sourcing of the vehicle’s battery. The first part requires that a percentage of the battery’s critical minerals be extracted or processed in the United States or a country with which the U.S. has a free trade agreement. The second part requires that a percentage of the battery’s components be manufactured or assembled in North America.

A vehicle may qualify for the full $7,500 by meeting both requirements, or for a partial credit of $3,750 by meeting only one. A vehicle is ineligible if any of its battery components were manufactured by a Foreign Entity of Concern (FEOC). As of 2025, this restriction also applies to critical minerals.

Because these sourcing requirements and the list of qualifying vehicles can change, buyers should consult the official list on the FuelEconomy.gov website before making a purchase.

Other Available Clean Vehicle Credits

Used Clean Vehicles

A separate tax credit is available for the purchase of used clean vehicles. This credit is for 30% of the vehicle’s sale price, with a maximum value of $4,000. To be eligible, the vehicle’s sale price cannot exceed $25,000. Additionally, the model year must be at least two years earlier than the calendar year in which it is purchased.

Leased Clean Vehicles

Consumers who lease a clean vehicle may also see savings, although indirectly. Through the Commercial Clean Vehicle Credit, the financial institution that leases the vehicle can receive a tax credit of up to $7,500. The leasing company may then pass this savings on to the customer in the form of a lower down payment or reduced monthly payments.

Required Information and Documentation at the Time of Sale

Securing the correct documentation from the seller is a necessary step. The transaction must take place with a dealer who is registered with the IRS Energy Credits Online portal. If a dealer is not registered, the buyer will be unable to claim the credit.

At the time of sale, the dealer must provide the buyer with a time-of-sale report. This document contains information the IRS uses to verify eligibility. The report must include the buyer’s name and taxpayer identification number (TIN), the dealer’s name and TIN, the vehicle identification number (VIN), battery capacity, the date of the sale, and the final sale price.

The dealer is required to provide this report to the buyer and simultaneously submit the same information electronically to the IRS. Whether the buyer claims the credit on their tax return or transfers it to the dealer, this report is required.

How to Claim the Credit

Claiming on Your Annual Tax Return

One method for receiving the financial benefit of the Clean Vehicle Credit is to claim it directly on your annual federal income tax return. This involves completing and filing IRS Form 8936, Clean Vehicle Credits, with your Form 1040. The information required comes from the time-of-sale report, including the vehicle’s VIN and the date it was placed in service. This is a nonrefundable credit, meaning it can lower your tax bill to zero, but you will not receive any portion of it back as a refund beyond that amount.

Transferring the Credit to a Dealer

A more immediate way to benefit is to transfer the credit to the dealer at the point of sale for an upfront discount or cash payment. To do this, the buyer must attest to their eligibility at the dealership. The dealer then uses the IRS Energy Credits Online portal to verify the vehicle’s eligibility and submit the credit transfer. Even though the credit has been received as a discount, the buyer must still complete and file Form 8936 with their annual tax return. On the form, you will report that you transferred the credit to the dealer.