Why the IRS May Reject Your Form 8936 for the EV Tax Credit

Claiming the electric vehicle (EV) tax credit can lower your federal tax bill, but not every application gets approved. The IRS has strict guidelines, and even minor mistakes on Form 8936 can lead to rejection. Understanding why claims are denied can save time and frustration.

Several factors determine whether your claim is accepted, including income limits and documentation requirements.

Who Qualifies for This Credit

Eligibility depends on income, vehicle ownership, and usage. The Inflation Reduction Act of 2022 introduced income limits based on modified adjusted gross income (MAGI). For 2024, the cap is $150,000 for single filers, $225,000 for heads of household, and $300,000 for married couples filing jointly. If your MAGI exceeds these amounts, you cannot claim the credit.

Only buyers of new EVs qualify. Leasing does not, as the credit typically goes to the leasing company, which may pass on the savings through lower lease payments. The vehicle must also be purchased for use in the United States—foreign purchases are ineligible.

Business owners can claim the credit if the EV is used for business purposes. However, the credit must be allocated based on business use. For example, if an EV is used 60% for business and 40% for personal driving, only 60% of the credit can be claimed. Documentation, such as mileage logs, is required to support this allocation.

Which Vehicles Fit the Criteria

Not all EVs qualify. The IRS enforces rules on manufacturing, battery composition, and final assembly locations. Under the Inflation Reduction Act, an EV must be assembled in North America. Even if a U.S. automaker sells the vehicle, it will not be eligible if production occurs overseas. The Department of Energy maintains a list of eligible models, updated regularly.

Battery sourcing requirements further limit eligibility. To receive the full credit, a percentage of the battery’s critical minerals must be extracted or processed in the United States or a country with a free trade agreement. Additionally, a portion of the battery components must be manufactured or assembled in North America. These thresholds increase each year, meaning a vehicle that qualifies one year may not the next if manufacturers do not adjust their supply chains.

Price limits also apply. SUVs, vans, and pickup trucks must have a manufacturer’s suggested retail price (MSRP) of $80,000 or less, while sedans and other passenger cars cannot exceed $55,000. The MSRP cap includes the base price and factory-installed options but excludes dealer markups and destination fees. Buyers should verify the specific trim level, as higher-end versions with additional features may exceed the price limit.

Calculating the Tax Credit

The maximum available credit for a new EV is $7,500, split into two parts: $3,750 for meeting battery mineral sourcing requirements and another $3,750 for battery component manufacturing criteria. If a vehicle meets only one of these conditions, the credit is reduced accordingly. Since these rules change annually, a model that qualified last year may not receive the full amount this year.

The credit is non-refundable, meaning it can reduce your tax bill to zero but will not generate a refund if your tax liability is lower than the credit amount. For example, if you qualify for the full $7,500 but owe only $5,000 in federal taxes, you can claim only $5,000. There is no carryover to future tax years.

For those without enough tax liability to use the full credit, a transfer option allows them to apply the credit at the point of sale. The dealership reduces the vehicle’s price by the credit amount and claims the credit instead. To qualify, buyers must certify to the dealer that they meet all eligibility requirements, including income limits.

Documentation Requirements

Filing Form 8936 requires accurate documentation. The purchase agreement must include the VIN, date of sale, purchase price, and seller details. Buyers should ensure all information matches their tax return to avoid discrepancies.

A manufacturer’s certification statement is also required. Automakers provide these statements to confirm that a vehicle meets battery sourcing and assembly requirements. Some manufacturers publish these certifications online, while others provide them at the time of purchase. Keeping a copy is important, as the IRS may request it.

Business owners must provide additional records to support the business use percentage. This may include mileage logs, depreciation schedules, or financial statements. If the EV is leased to employees or used in a fleet, written policies on vehicle use can help support the claim.

Common IRS Rejection Factors

Errors on Form 8936 can lead to rejection. The IRS closely reviews EV tax credit applications, and certain mistakes are more likely to cause denials or delays.

A common issue is incorrect or missing vehicle identification numbers (VINs). The IRS cross-references the VIN with manufacturer reports to verify eligibility and ensure the vehicle has not already been claimed. If the VIN is entered incorrectly or does not match IRS records, the credit may be denied. If a taxpayer tries to claim the credit for a used EV that has already been claimed by a previous owner, the IRS will reject the application, as the credit for used EVs is only available once per vehicle.

Exceeding the income threshold is another frequent rejection factor. Since eligibility is based on modified adjusted gross income (MAGI), taxpayers must ensure they are using the correct figure from their tax return. If the IRS determines that MAGI exceeds the allowable limit, the claim will be denied.

Failing to properly allocate business use percentages can also cause issues. If the IRS finds inconsistencies between the credit claim and business expense deductions reported elsewhere on the return, the claim may be rejected. Proper documentation is essential to avoid these problems.