What to Know About Electric Vehicle Tax Credits in 2024

What is the electric vehicle tax credit?

First things first: what electric vehicle tax credit is available for vehicles purchased on or after January 1, 2023?

For new electric vehicles:

Electric vehicles — also commonly called clean energy vehicles (we’ll be using both terms in this article) — purchased new on or after January 1, 2023 may be eligible for a tax credit of up to $7,500. This credit covers all-electric, plug-in hybrid, or fuel cell electric vehicles.

For pre-owned electric vehicles:

What about pre-owned electric vehicles? Used clean energy vehicles purchased on or after January 1, 2023 may be eligible for a tax credit of up to $4,000.

(New or used electric vehicles purchased before January 1, 2023 may qualify for a similar tax credit. For the sake of this post, we’ll only be covering clean energy vehicles purchased in 2023 and 2024.)

New Vehicles: Claiming the Electric Vehicle Tax Credit

How does the IRS determine qualifying new electric vehicles?

First, let’s begin with how the IRS defines which new clean vehicles qualify for this credit. The vehicle must:

• Be placed in service on or after January 1, 2023
• Not be acquired for resale
• Be manufactured by a qualified manufacturer
• Meet the definition of a motor vehicle under Title II of the Clean Air Act (in other words, a vehicle with four wheels made for public streets and highways)
• Have a gross vehicle weight rating of less than 14,000 pounds
• Be powered to a significant extent by an electric motor with a battery capacity of 7 kilowatt hours or more
• Be capable of being recharged from an external source of electricity
• Have completed final assembly in North America

It’s quite the list, isn’t it?

How do you know if your electric vehicle meets all those requirements?

The great news is that the government has created this handy FuelEconomy.gov tool — allowing you to search the specifics of your vehicle to help you determine if you qualify and the tax credit amount for which you may be eligible.

HOWEVER. (There’s always a “however.”) You must confirm with the dealer that your specific electric vehicle qualifies for the credit. Your dealer also must provide you with an IRS time-of-sale report.

IMPORTANT NOTE WHEN CHOOSING A DEALER: Choose your dealers with care. For clean energy vehicles placed into service on or after January 1, 2024:

• The dealer must be registered with IRS Energy Credits Online
• The vehicle must be approved through Energy Credits Online at the time of sale

Can you transfer this credit to the dealership?

Speaking of dealers…

Starting in 2024, you may elect to transfer the credit to the dealership rather than taking the credit on your tax return. By transferring the credit to the dealership, you are able to reduce the vehicle’s cost by the amount of the tax credit.

However, this only applies to buyers that qualify to take the credit on their tax return. If it is later determined that you do not qualify for the tax credit, you will be required to pay the dealership for the difference.

Are there income limitations for claiming the electric vehicle tax credit in 2024?

Yes. If your income surpasses the following modified Adjusted Gross Income (AGI), you cannot claim this credit:

• $300,000 for married couples filing jointly
• $225,000 for heads of households
• $150,000 for all other filers

But the IRS gives you options here. You can use your modified AGI from either the year you put your vehicle into service or the year prior, whichever is less.

Are there price limits?

You bet. The manufacturer suggested retail price (MSRP) cannot exceed the following cost for these clean vehicle types:

• Vans — $80,000
• Sport Utility Vehicles — $80,000
• Pickup Trucks — $80,000
• Other — $55,000

Keep in mind that this does not include taxes, fees, or any optional items added by the dealer. So the final cost you pay for the vehicle may exceed this listed amount so long as the MSRP price does not.

That same online tool we mentioned above lists the MSRP threshold for clean energy vehicle models you search.

Pre-Owned Vehicles: Claiming the Electric Vehicle Tax Credit

How does the IRS determine qualifying pre-owned electric vehicles?

In order for a used vehicle to qualify for the electric vehicle tax credit, it must meet the following IRS requirements:

• Not acquired for resale
• Purchased from a dealer (not an individual)
• Has a sale price of $25,000 or less (not including taxes or title and registration fees)
• Has a model year at least 2 years earlier than the calendar year when you buy it. (Did you purchase a vehicle in 2023? Then the vehicle needs to have a model year of 2021 or older.)
• Not have already been transferred after August 16, 2022 to a qualified buyer
• Have a gross vehicle weight rating of less than 14,000 pounds
• Be an eligible FCV or plug-in EV with a battery capacity of least 7 kilowatt hours
• Be for use primarily in the United States

The dealer must also report required information at the time of sale — both to you and to the IRS.

>> See if your used electric vehicle qualifies for the tax credit using this FuelEconomy.gov tool.

Who can claim for electric vehicle tax credit for used vehicles?

For you to claim this credit, you CANNOT:

• Be the original owner
• Be claimed as a dependent on another person’s tax return
• Have already claimed another used clean vehicle credit in the 3 years before the purchase date

Are there income limitations?

Yep, adjusted gross income (AGI) limitations also apply. It may not exceed:

• $150,000 for married filing jointly
• $112,500 for heads of households
• $75,000 for all other filers

As with new vehicles, you can use your modified AGI from the year you put your used vehicle into service or the year prior, depending on which year is less.

Infrastructure Upgrades: Qualifying for the Alternative Fuel Refueling Property Credit

Did you make infrastructure upgrades to accommodate your new clean vehicle, like adding charging equipment to your home? You may qualify for the Alternative Fuel Refueling Property Credit. Businesses can also claim this tax credit, but for the purposes of this post, we’re focusing on personal tax credits.

This credit allows you to take a tax credit of 30% of the costs of “qualified alternative fuel vehicle refueling property” up to $1,000 for property placed in service on or after January 1, 2023. This is for nondepreciating property. For depreciating property, the credit is 6% with a maximum credit of $100,000 for each single item of property. Property placed in service prior to 2023 has different tax credit limitations.

So what is a qualified alternative fuel vehicle refueling property? (Phew, that’s a mouthful.) The IRS defines it as property that “must be used to store or dispense clean-burning fuel.”

Starting on January 1, 2023, the following also qualifies for this credit:

• Charging stations for 2- and 3-wheeled vehicles (for use on public roads)
• Bidirectional charging equipment (vehicle-to-grid or V2G)

Additional qualifications that went into effect in 2023 may cancel your chance to claim this credit: the credit now only applies to low-income communities or non-urban census tracts. This mapping tool provided by the U.S. Department of Energy helps you to determine whether or not your geographic location qualifies.

Last (but most certainly) not least: “The credit is subject to recapture if the property the credit applied for ceases to qualify within 3 full years from the placed-in-service date.”

If you meet the qualifications, you can take this tax credit during the year for which the property was placed into service.

Get help claiming your electric vehicle tax credits

When it comes to taxes, rarely are things straightforward. And in the case of electric vehicle tax credits, that’s certainly evident. The good news is that our CPAs stay up to date on all new IRS regulations and guidance so that you can be confident all qualifying tax credits are being claimed. Contact us to learn more about working together.