It’s Electric! 2023 Guide to the Electric Vehicle Tax Credit


November 28, 2023
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If you’re interested in purchasing an electric vehicle, then you’ll want to get up to speed with the latest rules and regulations for the electric vehicle tax credit. Buckle up! Our 2023 guide to the electric vehicle tax credit can help you get on the road with a “clean vehicle” for less. Keep reading to learn more.

What Is the Electric Vehicle Tax Credit?

The electric vehicle tax credit, or EV tax credit, is a nonrefundable tax credit available to taxpayers who purchase a qualified electric vehicle or plug-in hybrid vehicle.

The EV tax credit was recently updated by the Inflation Reduction Act of 2022 for qualifying electric vehicle purchases in the years 2023 through 2032. In 2023, if you buy an eligible new electric vehicle, you could receive as much as a $7,500 tax credit, and if you buy an eligible used EV, you could get as much as a $4,000 tax break. The nonrefundable tax credit can be claimed on 2024 tax returns.

In 2024, the federal government plans to expand access to the tax break by permitting taxpayers to choose between claiming the tax credit or transferring the credit to the car dealer in order to receive the qualified vehicle at the equivalent discounted price at the point of sale.

Let’s take a look at some of the major rules and regulations that apply to the electric vehicle tax credit.

EV Tax Credit Rules and Regulations

The IRS sets forth numerous rules and regulations for those wishing to purchase an electric vehicle eligible for the EV tax credit.

First, it’s important to know which vehicles are eligible for either a full or partial tax credit. You can find a full and updated list of all eligible makes and models on the federal government’s online tool, FuelEconomy.gov. Here you can filter vehicles by make, model year, vehicle category, and purchase options to determine which vehicles are eligible based on their date of delivery.

According to the IRS, in order for a new or used vehicle to qualify for the electric vehicle tax credit, it must:

  • Have a battery capacity of at least 7 kilowatt hours
  • Have a gross vehicle weight rating of less than 14,000 pounds
  • Be made by a qualified manufacturer
  • Undergo final assembly in North America
  • Meet critical mineral and battery component requirements (as of April 18, 2023)

For new electric vehicles, the manufacturer suggested retail price (MSRP) can’t exceed:

  • $80,000 for vans, sport utility vehicles, and pick up trucks
  • $55,000 for other vehicles

For used electric vehicles, the following requirements apply:

  • Have a sale price of $25,000 or less
  • Have a model year at least 2 years earlier than the calendar year in which you buy it
  • Not have already been transferred after August 16, 2022 to a qualified buyer
  • Only qualifies for the first transfer of a vehicle
  • Be for use primarily in the United States
  • Credit can only be claimed once every three years

For both new and used electric vehicles, the sale only qualifies if a qualified seller reports required information at the time of sale to you and to the IRS. (Sellers are required to report your name and taxpayer identification number to the IRS in order for you to be eligible to claim the credit.)

Second, it’s just as important to know whether you, the taxpayer, qualify to claim the EV tax credit based on your modified adjusted gross income (MAGI).

Here are the limits set by the IRS:

For new electric vehicles, your MAGI may not exceed:

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

For used electric vehicles, your MAGI may not exceed:

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

You can use your MAGI from the year you take the delivery of the vehicle or the year before, whichever is less. If your income is below the threshold for one of the two years, you can claim the credit.

In addition, for new electric vehicles, you must purchase the vehicle for your own use, not for resale, and use it primarily in the U.S.

For used electric vehicles, you must purchase the vehicle for your own use and use it primarily in the U.S. You must also not be the original owner, must not be claimed as a dependent on another person’s tax return, and not have claimed another used clean vehicle credit in the three years before the purchase date.

Great news! If you and the electric vehicle you purchase meet eligibility requirements, a generous tax break may be coming your way. Let’s review how the EV tax credit is calculated next.

How Is the Electric Vehicle Tax Credit Calculated?

The new EV tax credit consists of battery and sourcing requirements, with each adding up to half the credit. If the car you purchase meets both requirements, then you may be eligible to receive the full credit. If it meets one of the requirements, then you may be eligible to receive a partial credit of $3,750.

The following IRS rules apply to vehicles that were delivered on or after April 18, 2023:

Battery requirement

In order to be eligible for the battery component of the requirement, a specific percentage of the electric vehicle’s battery must have been manufactured in North America, as follows:

  • 2023: 50%
  • 2024: 60%
  • 2025: 60%
  • 2026: 70%
  • 2027: 80%
  • 2028: 90%
  • 2029 through 2032: 100%

Critical minerals requirement

In order to be eligible for the critical minerals component of the requirement, a specific percentage of critical minerals in the electric vehicle’s battery must be extracted or processed within the United States, or within a country with whom the U.S. has a free trade agreement, as follows:

  • 2023: 40%
  • 2024: 50%
  • 2025: 60%
  • 2026: 70%
  • 2027 through 2032: 80%

These regulations will get stricter. In 2024, electric vehicles may not source battery parts from a U.S. country of concern. In 2025, electric vehicles may not contain any critical minerals sourced from a U.S. country of concern.

Now, let’s check out how to claim the EV tax credit, provided you and your electric vehicle meet the above eligibility criteria.

How to Claim the EV Tax Credit

To claim the federal electric vehicle tax credit, you must fill out Form 8936 when you file your federal income taxes. Note that the claim is nonrefundable, and as such, it can lower or eliminate your tax bill but will not result in a refund. In addition, any excess amount cannot be carried forward to offset future taxes.

Two final, yet important points to note:

  1. In general, you can only claim the EV tax credit for the tax year in which your vehicle was delivered to you, even if it was purchased the previous year.
  2. The EV tax credit cannot be claimed for leased electric vehicles.

If you are interested in learning more about whether you qualify for the EV tax credit, we encourage you to speak with a knowledgeable tax professional. Reach out to our team of accounting professionals at Honest Buck. We can help you build a tax strategy that works for you and your childcare business.


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