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Here's an unexpected bit of good news for car buyers: In 2023, the average price of an electric vehicle (EV) dropped 17.7%, according to Cox Automotive. Unfortunately, the average price it dropped to was $50,798—not exactly pocket change. Still, lower prices, manufacturer and dealer incentives, comparatively high gas prices and a $7,500 federal tax credit for new EVs could add up to greater affordability.
In 2024, the federal EV tax credit provides up to $7,500 that can be applied toward your purchase price, lowering the cost of your new EV upfront. Vehicle restrictions and income requirements apply, and choosing the right dealer is critical. However, you can still get a significant tax credit when you purchase an eligible new EV. Read on for details.
How Does the EV Tax Credit Work?
The clean vehicle tax credit provides up to $7,500 in non-refundable tax credits when you purchase a new electric vehicle, plug-in hybrid or fuel cell electric vehicle. Tax credits for EVs have been around for years, but 2024 brings new requirements and a new process that could make it easier to afford a new fuel-efficient car—but a bit more difficult to qualify.
Changes to the EV Tax Credit for 2024
In 2024, the EV tax credit has new vehicle requirements and income limits for taxpayers. However, the biggest change might be in the way you claim the credit.
Starting in 2024, you'll need to obtain an approved time-of-sale report when you purchase your vehicle. You can use the report to claim the credit on your tax return—as in years past—and can transfer the credit to your dealer to have it applied to your vehicle's final purchase price. With this new system, instead of waiting until tax time to receive your credit, the credit acts as an immediate discount that reduces your upfront cost and/or the amount you need to finance.
New Vehicle Requirements
New sourcing requirements that went into effect in mid-2023 are still in play (and may still be confusing) in 2024. Qualifying vehicles must undergo final assembly in North America and meet sourcing requirements for battery components and critical minerals. Vehicles qualify for a $3,750 credit for meeting battery part requirements and a $3,750 credit for meeting critical minerals requirements, for a total of $7,500.
Current requirements mean that fewer manufacturers' vehicles qualify for the 2024 credit. As of February 2024, only eight manufacturers offer eligible vehicles:
- Chevy
- Chrysler
- Ford
- Jeep
- Lincoln
- Rivian
- Tesla
- Volkswagen
Additionally, passenger cars must have a manufacturer's suggested retail price (MSRP) of $55,000 or less; $80,000 or less for vans, SUVs and light trucks.
Income Limits
Finally, to qualify for the 2024 credit, your adjusted gross income (AGI) must be below IRS limits: $150,000 for single filers, $225,000 for heads of household and $300,000 for married couples filing jointly.
How to Qualify for the 2024 EV Tax Credit
Follow this quick eligibility checklist to determine whether you qualify for the 2024 EV tax credit.
- Your vehicle will be for personal use in the U.S. To qualify, the vehicle must be for personal use and not resale, and it must be used primarily in the U.S.
- Your income doesn't exceed IRS limits. You can use your AGI from this year or last. For simplicity's sake, start by checking your AGI on last year's tax return: It's line 11 on Form 1040. If your prior year's AGI qualifies you, you're good to go. If not, try to estimate your current-year AGI. However, if your AGI turns out to be over the limit when you file your taxes, you'll have to repay the IRS for any credit you received.
- Choose a qualifying vehicle. Because sorting through eligibility requirements for each vehicle on your own can be complicated, start by checking out the full list of qualifying vehicles on FuelEconomy.gov. Also, consult with your dealer about eligibility requirements.
If you want to purchase an EV from a manufacturer that's not on the list, you may want to consider buying a qualifying used vehicle (more details on this below). The used clean energy vehicle credit allows you to choose from a wider range of vehicles and manufacturers to receive a credit of up to $4,000.
- Find a registered dealer. To claim the credit in 2024, you need to work with a dealer that's registered with IRS Energy Credits Online. If you'd like to apply your credit toward the price of the vehicle, confirm that your dealer is able to handle that transaction for you.
How to Claim the Federal EV Tax Credit
If you meet the eligibility requirements above and are ready to make a purchase, your dealer will use the IRS Energy Credits Online website to apply for an approved time-of-sale report you can use when you file your taxes. At this time, you can decide whether you'd like the dealer to transfer your credit and have them apply it to your final cost.
Whether you transfer your credit and use it immediately or save it for tax time, you'll need to complete IRS Form 8936 and submit it with your tax return to officially claim the credit.
Frequently Asked Questions
As a rule, EVs cost more money to buy, but may recoup some of that cost difference as fuel savings. EVs may be less expensive to maintain than their gas-powered counterparts. It also matters how much you drive: If you fill your gas tank multiple times per week, saving money on fuel will have a greater impact on your monthly budget.
EV tax credits are meant to level the playing field a bit. Shaving $7,500 off the purchase price of an EV does take some of the sting out of a high sticker price. Still, it's a good idea to do a side-by-side comparison of an EV, plug-in hybrid or fuel cell EV versus a gas-powered car. Consider purchase price, tax credits, maintenance costs, fuel costs per mile and how many miles you normally drive to get a realistic sense of how they compare.
Used EVs have their own tax credit. The used clean vehicle credit equals 30% of the sale price for a qualified used EV or fuel cell EV, up to a maximum credit of $4,000.
The list of qualifying vehicles includes several makes and models no longer eligible for the new EV credit, including models from Audi, BMW, Honda, Toyota, Kia and Lexus. In addition to making the list, the vehicle must be purchased from a licensed dealer for $25,000 or less, and the model year must be at least two years older than the current calendar year.
To qualify for the federal EV tax credit on a new vehicle, your modified adjusted gross income may not exceed:
- $300,000 for married couples filing jointly
- $225,000 for heads of household
- $150,000 for all other filers
You can use your current-year adjusted gross income or your adjusted gross income from the prior year, whichever is less.
If you're considering a used vehicle, your adjusted gross income in this year or last can't exceed:
- $150,000 for married filing jointly or a surviving spouse
- $112,500 for heads of household
- $75,000 for all other filers
The Bottom Line
Though meeting EV tax credit requirements is a little complicated in 2024, a $7,500 price reduction can go a long way toward bringing a clean energy vehicle within reach. Better still, being able to apply your tax credit at the point of sale makes the 2024 credit more useful when you're working with a limited budget (and who isn't?).
Even with tax credits, financing a new EV, plug-in hybrid or fuel-cell EV requires planning and good credit. If you're considering a new vehicle purchase, now may be a good time to check your credit score and credit report for free with Experian. You'll get a clearer picture of your financing options so you can explore the best loan opportunities based on your situation.