Who Qualifies for the $4000 EV Tax Credit?

The Used Clean Vehicle Credit is a federal tax incentive designed to make purchasing a previously-owned electric or other clean energy vehicle more accessible. This program provides a tax credit of up to $4,000 for qualifying used vehicles, functioning as a direct reduction of your tax liability. Understanding the specific rules for this credit is the first step for any potential buyer looking to take advantage of this financial incentive.

Determining Your Eligibility

Buyer Requirements

To qualify for the Used Clean Vehicle Credit, you must meet several criteria. Your eligibility depends on your modified adjusted gross income (MAGI) for either the year you take delivery of the vehicle or the preceding year, whichever is lower. The income thresholds are $150,000 for married filing jointly, $112,500 for heads of household, and $75,000 for all other filing statuses.

In addition to income limits, you must meet other qualifications:

• Be an individual purchasing the vehicle for your own use, not for resale.
• Not be the original owner of the vehicle.
• Not be claimed as a dependent on another person’s tax return.
• Not have claimed another Used Clean Vehicle Credit in the three years prior to the current purchase date.

Vehicle Requirements

The vehicle’s sale price cannot exceed $25,000. This price includes dealer-imposed fees but excludes government charges like taxes and registration fees. The value of any trade-in does not lower the sale price for the purpose of this $25,000 cap.

The vehicle’s model year must be at least two years earlier than the calendar year of purchase. For instance, a vehicle bought in 2024 must be a 2022 model or older. The vehicle must be a qualified plug-in electric vehicle (EV) or fuel cell vehicle (FCV) with a battery capacity of at least 7 kilowatt hours. A list of qualifying models is maintained on the FuelEconomy.gov website.

Sale Requirements

The vehicle must be purchased from a licensed dealer, as private-party sales do not qualify for this tax credit. The dealer is responsible for providing you with the necessary documentation about the vehicle’s eligibility at the time of sale.

A vehicle is not eligible if it has already been transferred to a qualified buyer after August 16, 2022, other than the original owner. The credit can only be claimed once for any given used vehicle. The dealer can verify this for you through an IRS portal by checking the vehicle identification number (VIN).

Required Information and Forms

Information from the Dealer

When you purchase a qualifying vehicle, the dealer must provide you with a time-of-sale report. This report confirms that the sale meets the requirements for the tax credit. If the dealer fails to provide this report, the vehicle is not eligible.

The report must include:

• The dealer’s name and taxpayer identification number.
• The vehicle identification number (VIN).
• The final sale price.
• The maximum credit allowable for the vehicle.

Completing IRS Form 8936

The primary document for claiming the credit is IRS Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit. You will use the information from the dealer’s time-of-sale report to complete the section for previously-owned vehicles.

You will need to enter the vehicle’s VIN, model year, and the date it was placed in service. The form will guide you to calculate the tentative credit amount, which is the lesser of $4,000 or 30% of the vehicle’s sale price. You will then apply your personal tax liability limitations to determine the final allowed credit.

Claiming the Credit

Option 1: Transferring the Credit at the Point of Sale

As of January 1, 2024, buyers can transfer their Used Clean Vehicle Credit directly to the dealership at the time of purchase. This allows the credit to act as an immediate discount, lowering the vehicle’s upfront cost. The dealer can apply the credit amount as part of your down payment or as a cash equivalent, reducing the total you need to pay or finance.

To exercise this option, you must elect to do so at the dealership. You will need to attest that you meet all buyer eligibility requirements, including the income limitations. The dealer, who must be registered with the IRS’s Energy Credits Online portal, will then submit the necessary information to the government to receive payment on your behalf.

Option 2: Claiming the Credit on Your Tax Return

If you choose not to transfer the credit to the dealer, you can claim it by filing your annual federal income tax return. You must complete and attach Form 8936, using the information from the dealer’s report to substantiate your claim.

When you file, the calculated credit amount from Form 8936 is applied against your total tax liability for the year. This credit is nonrefundable, meaning it can reduce your tax liability to zero, but you will not receive any portion of the credit back that exceeds your tax bill.