Now Reading: What exactly is an electric vehicle tax credit?
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What exactly is an electric vehicle tax credit?
Electric vehicles (EVs) are everywhere these days, and so are the incentives that make owning one a little lighter on your wallet. One of the best perks? The electric vehicle tax credit, which is designed to help make buying an EV or plug-in hybrid a more budget-friendly decision. Let’s break down what it is, how it works, and what you need to know before heading to the dealership.
How does the electric vehicle tax credit work?
Think of the EV tax credit as a reward for going green. It’s a federal incentive that reduces the amount you owe in taxes—up to $7,500 for a new electric vehicle and up to $4,000 for a used one.
So, let’s say you owe $6,000 in taxes, and you qualify for a $4,000 EV tax credit. That would knock your tax bill down to just $2,000. Nice, right?
And a big change came in 2024. Instead of waiting until tax season to claim the credit, you’ll be able to apply it directly at the dealership when you buy your car. This means the credit will reduce the upfront cost of your vehicle, making it an even better deal.
Who is eligible for the EV tax credit?
To qualify, you have to fall within certain income limits. Here’s the breakdown:
- Single filers can make up to $150,000.
- Married couples filing jointly can make up to $300,000.
- Heads of households have a limit of $225,000.
If your income fits within these brackets, and the car you’re buying meets the requirements, you’re all set for a significant tax break.
What vehicles qualify for the credit?
Not every electric vehicle qualifies for the full tax credit, so it’s crucial to check before you buy. To be eligible for the maximum credit:
- New cars must have a sticker price of $55,000 or less.
- SUVs, pickup trucks, and vans can go up to $80,000.
- For used EVs, the price must be $25,000 or less, and the vehicle needs to be at least two years old.
On top of that, the vehicle has to be assembled in North America, and its battery must meet strict sourcing rules. By 2024, at least 60% of the battery components need to be made or assembled in North America, and that requirement will continue to increase over time.
How to claim the EV tax credit
Up until now, you’d have to claim the credit on your tax return for the year you bought the vehicle. But starting in 2024, you can apply for the credit immediately when you purchase your EV.
You’ll be able to transfer the credit to the dealer, which means your car’s price tag drops right away—no need to wait until tax season for that savings.
A final note
The electric vehicle tax credit makes the leap into the EV world more affordable and appealing, but it’s essential to stay updated on the rules. As battery sourcing and manufacturing requirements tighten over time, the list of eligible vehicles will continue to change. So before making any decisions, make sure you’ve got all the info you need.
Further reading before you buy your new EV or file for the tax credit:
