How to Qualify for the $7500 EV Tax Credit

The federal government offers an incentive for purchasing a new electric vehicle, known as the Clean Vehicle Credit. This credit, often referred to as the $7,500 EV tax credit, is designed to encourage the adoption of electric vehicles by making them more affordable. The rules governing this credit were revised by the Inflation Reduction Act of 2022, introducing new requirements for both the buyer and the vehicle. The credit is not a simple rebate but a nonrefundable tax credit with specific criteria that must be met.

Buyer Eligibility Requirements

A prospective electric vehicle owner must first meet a set of personal eligibility requirements. The primary financial gatekeeper is the taxpayer’s Modified Adjusted Gross Income (MAGI). For new clean vehicles, the MAGI cannot exceed $300,000 for married couples filing jointly, $225,000 for heads of household, or $150,000 for all other filers. A taxpayer can use the lower of their MAGI from the year they take delivery of the vehicle or the prior year to qualify.

The Clean Vehicle Credit is nonrefundable. This means the credit can reduce a taxpayer’s federal tax liability to zero, but no part of it will be paid out as a refund beyond that. For instance, if a buyer qualifies for the full $7,500 credit but only owes $5,000 in federal income tax for the year, their tax bill will be reduced to zero, but they will not receive the remaining $2,500.

The person purchasing the vehicle must be an individual who is not claimed as a dependent on another person’s tax return. The vehicle must be acquired for the taxpayer’s own use and not for the purpose of resale.

Finally, the vehicle’s use is subject to a geographic limitation. To qualify for the credit, the vehicle must be used predominantly within the United States.

Vehicle Eligibility Requirements

Once a buyer confirms their own eligibility, the focus shifts to the vehicle. The Manufacturer’s Suggested Retail Price (MSRP) cannot exceed certain thresholds. For vans, sport utility vehicles, and pickup trucks, the MSRP cap is $80,000. For all other vehicles, such as sedans, the limit is $55,000. This price is determined at the time of sale and includes any optional equipment added by the manufacturer but excludes destination fees.

A requirement is that the vehicle’s final assembly must take place in North America. The structure of the credit itself is divided into two distinct parts, each worth $3,750, for a potential total of $7,500. A vehicle may qualify for one part, both, or neither, depending on the sourcing of its battery components and critical minerals.

Critical Mineral Requirements

The first $3,750 is tied to the battery’s critical minerals. To meet this requirement, a specific percentage of the value of the minerals contained in the battery—such as lithium, cobalt, and nickel—must be extracted or processed in the United States or a country with which the U.S. has a free-trade agreement. The required percentage increases over time.

Battery Component Requirements

The second $3,750 of the credit is dependent on the battery’s components. This rule mandates that a certain percentage of the value of the battery components, like anodes, cathodes, and electrolytes, must be manufactured or assembled in North America. The required percentage for battery components also increases annually.

In addition to these sourcing requirements, vehicles are subject to rules regarding Foreign Entities of Concern (FEOC). Since 2024, a vehicle is ineligible if any of its battery components were manufactured or assembled by a FEOC. Beginning in 2025, this exclusion expands to also apply to any vehicle containing critical minerals that were extracted, processed, or recycled by a FEOC.

The IRS and the Department of Energy maintain an updated list of qualifying vehicles on the FuelEconomy.gov website. This resource details which new vehicles are eligible and specifies whether they qualify for the full $7,500 or only the partial $3,750 credit. Buyers can also use the site’s Vehicle Identification Number (VIN) checker to confirm a specific vehicle’s final assembly location.

Information and Documentation for Claiming the Credit

The most important document is the seller’s report. For vehicles placed in service in 2024 or later, the dealer must submit this report to the IRS through the Energy Credits Online portal at the time of sale. The dealer must then provide the buyer with a copy of the report, including confirmation of the IRS’s acceptance of the submission.

The seller’s report must contain several key data points.

• The name and taxpayer identification number (TIN) of both the seller and the buyer
• The vehicle’s unique Vehicle Identification Number (VIN)
• The vehicle’s battery capacity
• The date of the sale and the final sale price
• The maximum credit allowable for that vehicle

This information is used to complete IRS Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit. This is the specific tax form where the credit is calculated and formally claimed. The data from the seller’s report directly populates the fields on this form. A blank version of Form 8936 and its instructions can be downloaded directly from the IRS website.

How to Claim the Credit on Your Tax Return

The completed Form 8936 must be attached to your Form 1040, U.S. Individual Income Tax Return, when you file. The credit amount calculated on Form 8936 is then transferred to the appropriate line on Schedule 3 (Form 1040), “Additional Credits and Payments.” This schedule is used to report various tax credits that are not claimed directly on the main Form 1040. The credit from Form 8936 will be combined with any other credits on Schedule 3, and the total is then carried over to the second page of the Form 1040.

The application of the credit will result in either a lower amount of tax owed or a larger tax refund, depending on your overall tax situation, including withholdings and other payments made throughout the year.

As of 2024, an option also exists for buyers to transfer the credit to a registered dealer at the point of sale. This allows the credit to be applied as an immediate discount on the vehicle’s purchase price.