Who Is Eligible for the $7,500 EV Tax Credit?

The federal government offers a financial incentive, the Clean Vehicle Tax Credit, to encourage the adoption of electric and other clean energy vehicles. This nonrefundable tax credit, authorized under the Inflation Reduction Act of 2022, can reduce a buyer’s tax liability by up to $7,500 for a new vehicle. The goals of this legislation are to make clean energy transportation more affordable and to stimulate domestic manufacturing of these vehicles and their components.

Buyer Eligibility Requirements

A taxpayer’s eligibility for the new clean vehicle credit is determined by their Modified Adjusted Gross Income (MAGI). The income thresholds are set by filing status. For married couples filing a joint tax return, the MAGI limit is $300,000. For those filing as Head of Household, the MAGI cap is $225,000, and all other filing statuses have a limit of $150,000. Taxpayers may use their MAGI from either the year they take delivery of the vehicle or the preceding year, whichever is lower.

Beyond income limits, the buyer must also meet several personal requirements.

• Be an individual.
• Purchase the vehicle for their own use, not for resale.
• Not be claimed as a dependent on someone else’s tax return.
• Intend to use the vehicle primarily within the United States.

New Vehicle Eligibility Requirements

For a new vehicle to qualify for the credit, it must meet several criteria related to its price, manufacturing, and component sourcing.

MSRP Cap

A constraint is the Manufacturer’s Suggested Retail Price (MSRP). For vans, sport utility vehicles (SUVs), and pickup trucks, the MSRP cannot exceed $80,000. For all other clean vehicles, such as sedans, the MSRP cap is $55,000. This price includes factory-installed options but excludes destination charges.

Battery Capacity

A vehicle must be equipped with a battery that has a capacity of at least 7 kilowatt-hours (kWh). This applies to both all-electric models and plug-in hybrids that meet the threshold.

Final Assembly

A requirement is that the vehicle’s final point of assembly must be in North America. Prospective buyers can verify a vehicle’s final assembly location by entering its Vehicle Identification Number (VIN) into a tool on the FuelEconomy.gov website. The dealer must also provide this information to the buyer.

Critical Mineral and Battery Component Sourcing

The full $7,500 credit is divided into two parts, each worth $3,750, and a vehicle may qualify for one, both, or neither. One part is tied to the percentage of the battery’s critical minerals that were extracted or processed in the United States or a partner country, or recycled in North America. The other part depends on the percentage of the battery’s components that were manufactured or assembled in North America. These required percentages increase over time.

In addition, there are rules regarding Foreign Entities of Concern (FEOCs). A vehicle is ineligible for the credit if its battery contains any components manufactured or assembled by a FEOC. The vehicle is also disqualified if its battery contains critical minerals extracted, processed, or recycled by such an entity.

Because these sourcing requirements are complex and change, the IRS maintains an official list of qualifying vehicles, which is the most reliable resource for consumers.

The Used Clean Vehicle Credit

For buyers considering a pre-owned electric vehicle, a separate incentive exists, the Used Clean Vehicle Credit. This credit is designed to make clean transportation technology accessible to a wider range of consumers.

The credit amount for a used vehicle is 30% of its sale price, with a maximum credit of $4,000. To be eligible, the vehicle’s sale price must not exceed $25,000. The sale price is determined before considering any trade-in value.

Buyer eligibility is subject to stricter income limits. The Modified Adjusted Gross Income (MAGI) must not exceed $150,000 for those married filing jointly, $112,500 for heads of households, and $75,000 for all other filers. The buyer cannot be the original owner of the vehicle, cannot be claimed as a dependent, and cannot have claimed another used vehicle credit in the previous three years.

The vehicle itself must also meet specific criteria. The model year must be at least two years earlier than the calendar year in which it is purchased. For instance, a vehicle bought in 2025 must have a model year of 2023 or older. The vehicle must be acquired from a licensed dealer, as private-party sales do not qualify. The dealer is responsible for providing the necessary information to the buyer and the IRS.

How to Claim the Credit

There are two methods for receiving the financial benefit of the Clean Vehicle Credit. The process begins at the dealership, which must document the sale for tax purposes regardless of how the buyer chooses to receive the credit.

Information Required from the Dealer

At the time of purchase, the seller must provide the buyer with a time-of-sale report, which the dealer also submits to the IRS. This report is required for the vehicle to be eligible for the credit and includes:

• The buyer’s name and taxpayer identification number
• The dealer’s information
• The vehicle’s VIN
• The sale price
• The maximum credit allowable for that specific vehicle

Transferring the Credit to the Dealer

A popular option allows buyers to transfer the credit directly to the dealership at the point of sale. The buyer must attest that they meet all eligibility requirements, such as the income limits. The dealer then verifies the vehicle’s eligibility through the IRS Energy Credits Online portal and can apply the credit amount as a discount on the final price or as a cash-equivalent down payment.

Claiming the Credit on Your Tax Return

Alternatively, a buyer can claim the credit when they file their annual federal income tax return. Using the information from the time-of-sale report, the buyer will complete and attach IRS Form 8936, Clean Vehicle Credits, to their return. The credit amount is then applied against their total tax liability, resulting in a reduction of taxes owed or an increase in their tax refund.