If you’re thinking about buying an electric car or a plug-in hybrid, you should be aware that some vehicles are eligible for a federal EV tax credit of up to $7,500.
The credits depend on where the electric cars are made, where the battery parts and minerals come from, how much they cost, and how much buyers make. Some of those regulations became stricter in 2024, disqualifying some cars. It would possibly still be possible to get the benefits of the credits if you lease an electric vehicle instead of buying one.
The tax credits are part of the Inflation Reduction Act of 2022. Designed to address climate change, fitness and taxes, the law also adjusts how tax credits are calculated for certain electric vehicle purchases new. The provisions of the Act have come into force in stages. Vehicles will have to be manufactured in North America and have an MSRP of less than $80,000 for an SUV and $55,000 for a sedan, truck or hatchback.
Plug-in hybrids would likely be eligible for tax credits, but regular hybrids likely wouldn’t. Starting in 2024, eligible buyers will be able to take advantage of tax credits in the form of an instant reduction at the dealership instead of waiting to pay taxes. season.
In this article, Consumer Reports points out how to maximize your savings, adding the use of tools like our Electric Vehicle Savings Finder to see which cars are eligible. We verify versions of many styles; Click on the model names below to check units and tests. The others on the list are electric vehicles that are still on sale or plug-in hybrid versions that we haven’t bought to test but have experimented with in most cases.
Ultimately, tax credits can determine how much money you save by switching to electricity. We will continue to update this article as new cars are added to the list.
According to the Treasury Department’s official list of eligible cars, the following cars are eligible for a full $7,500 tax credit if placed in service between January 1 and December 31, 2024:
The following cars are eligible for partial tax credits of $3,750 if placed in service between January 1 and December 31, 2024:
CR’s EV Incentive Finder tool can also tell you if the style you’re interested in could qualify for a federal tax credit, as well as state and local incentives that can also save you thousands more.
The IRS says the brands of the following electric and plug-in hybrid cars have indicated that the cars are eligible for a total tax credit of $7,500 if they are put into service before the end of 2023, that other requirements are met, such as the vehicle’s MSRP and the buyer’s income. . which are explained in detail later in this article:
Many of those cars also qualify for state and local incentives. You can learn more at CR’s Electric Vehicle Incentive Finder. Not all of those cars are currently on sale.
If a manufacturer uses other suppliers or meeting places, some cars would possibly be eligible while others possibly would not, even if they are the same make and model. This was first and foremost true for the popular Tesla Model 3 line, which at one point may also be eligible in the long term after automakers replace their battery and component suppliers, or if the United States loses industrial agreements with more countries.
The Treasury Department says the brands of the following electric and plug-in hybrid cars have indicated that they are eligible for partial tax credits of $3,750 if placed in service on or after April 18, 2023, and before December 31, 2023, the other needs are met, such as the vehicle’s MSRP and the buyer’s income:
If those cars were put on the road before April 18, 2023, owners will still be able to get tax credit advantages for 2023:
To qualify for the first $3,750, a portion of a vehicle’s battery parts will have to be produced or assembled in North America. To get the first $3,750, a portion of the critical minerals used in the battery will have to be mined or processed in the United States or a partner country with a flexible industrial agreement with the United States, or will have to have been manufactured with recycled fabrics in North America. These percentages accumulate each year starting in 2024, also when cars with parts from countries designated as “foreign entities of interest” are no longer eligible for a tax credit.
None of those regulations apply to leased electric and plug-in vehicles, so prospective buyers interested in an electric car or plug-in hybrid that isn’t eligible for tax credits could lease instead of buy.
Starting in 2024, eligibility is decided based on the individual vehicle and not the model. Automakers submit the vehicle identification numbers (VINs) of eligible cars to the IRS, and only those cars are eligible for a tax credit. A Treasury Department spokesperson told CR that even if two cars are the same make and model, one might qualify while the other might not.
To find out if the car you’re buying is eligible, ask your broker for a copy of documents called “Hour of Sale Report” that have been effectively submitted to the IRS Energy Credits online portal before you purchase and receive a new vehicle.
By 2024, buyers can transfer their credits to an eligible auto dealer at the time of purchase, which works much like an instant reduction in the price of the vehicle. Otherwise, you will need to file Form 8936, “Credit for Qualified Plug-In Electric Motor Vehicles (Including Qualified Plug-In Electric Two-Wheel Vehicles)” with your tax return. You will also want to provide your vehicle identification number (VIN), which can be found on the registration or on the dashboard at the base of the windshield.
It’s not just the car, but also the buyer. To qualify for a new car tax credit, your family’s source of income will need to have a source of adjusted gross income of up to $300,000. If you record as head of household, you will have to earn less than $225,000 and individual registrars will only qualify with a source of income less than $150,000. This provision would likely not apply if a vehicle is rented.
To be eligible for tax credits of up to $7,500, a new electric vehicle or eligible plug-in hybrid vehicle (PHEV) must meet certain rules:
• A vehicle’s MSRP must not exceed certain limits, so expensive electric cars like the GMC Hummer EV, Lucid Air, and Tesla Model S will not qualify. For SUVs, trucks and vans, the threshold is $80,000. For sedans, sedans, trucks and other cars, credits are limited to $55,000. These limits are based on a vehicle’s MSRP, not its promotional price, so a heavily discounted luxury car would not qualify. Additionally, this requirement would likely not apply to certain leased cars. .
• Regardless of how a vehicle is advertised, the Environmental Protection Agency decides whether it is an SUV, a pickup truck, or a sedan and it is indicated on the window sticker. For example, the Ford Mustang Mach-E is classified as a small SUV, but the Chevrolet Bolt EUV is classified as a small pickup truck.
• A vehicle must be assembled in North America, adding Canada and Mexico, to be eligible for a tax credit. This eliminates credits for cars assembled elsewhere, adding the BMW i4, Hyundai Ioniq 5, Kia EV6 and Toyota bZ4X. (This requirement may also not apply to some leased cars. )It doesn’t matter if a vehicle comes from an Asian or European brand, it only matters where it is assembled.
• To qualify for a full tax credit, at least 50% of a vehicle’s battery parts will need to be produced or assembled in North America. In addition, at least 40% of the critical minerals used in the battery will have to be mined or processed in the United States or a spouse country in a flexible industrial agreement with the United States, or they will have to have been manufactured from recycled materials. New regulations will become stricter over time, with requirements increasing by 10% each year until 2027. By then, 90% of battery parts and 80% of critical minerals will need to meet the guidelines.
• Car buyers will have to meet certain income source guidelines. Households with a source of adjusted gross income of up to $300,000 will continue to qualify for the new auto credit, while heads of household will have to earn less than $225,000 and individual taxpayers will only be eligible with a source of income of less than $150,000. This provision may not apply if a vehicle is rented.
• PHEVs with a battery of at least 7 kWh are eligible for a tax credit as long as they meet all other requirements. For PHEVs, tax credits are calculated at the lesser of 15% of the vehicle’s MSRP or the dollar difference between the PHEV charge and the charge for a gasoline-supplied edition of the same vehicle, or $7,500.
• Beginning in 2024, automobiles supplied with battery parts from countries designated as “foreign entities of interest,” adding companies owned, controlled by, or subject to the jurisdiction or direction of the governments of China, Iran, South Korea North and Russia, no Automakers will be guilty of tracing their chains of origin and the IRS will determine which cars meet the criteria.
• There is no vehicle sales cap for tax credits that made Tesla, GM and Toyota electric and plug-in hybrid cars ineligible under the previous rules. In years past, as soon as an automaker sold more than 200,000 eligible cars, the credits would start to disappear.
The Treasury Department says the new regulations aim to move the production and origin of electric cars from China to the United States and its free industrial partners, namely Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, the Dominican Republic and El Salvador. Salvador, Guatemala, Honduras, Israel, Jordan, South Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru and Singapore. Now they also come with Japan, after it signed a special minerals-focused industrial agreement with the United States, signed just before the new regulations were published, and it may expand to reach European Union countries as well, Reuters reports. A 2022 study of the electric vehicle supply chain by the International Energy Agency shows that a large majority of minerals, components, and battery cells currently come from China.
While the rules on battery and mineral sourcing are aimed at inspiring production in the United States, automakers and EV advocates told Consumer Reports that they worry that the complexity of those regulations could make it harder for consumers to find a vehicle that’s eligible for credits or how much they’ll be to claim.
Chris Harto, CR’s senior transportation and energy policy analyst, says it’s no surprise that fewer and fewer cars are eligible for credit. “Automakers would struggle to meet those needs in the immediate future,” he says, “but we anticipate this list to grow somewhat in the coming months and years, as automakers now have transparent targets to meet to be eligible and are scrambling to qualify.
There’s good news if the car you need to buy doesn’t qualify for tax credits. A Treasury spokesperson told CR that classic maximum rents would qualify for a $7,500 business loan that is not subject to the myriad of needs that will need to be met to qualify for new vehicle customer loans.
Here’s how it works: in the case of a lease, it would be the broker who would get the industry credits, not the user leasing the vehicle, and it would be up to the broker to pass those savings on to the consumer, in all likelihood reducing the value of the vehicle. vehicle acquisition. If a broker passes on the savings, drivers can get tax credits on a car made outside of North America, like the popular Hyundai Ioniq 5. High-income consumers and those who lease an expensive electric vehicle like a Lucid. Air or Tesla Model S may also qualify for the $7,500 credits as long as the agency passes on those savings.
However, if a client decides to do so, they should double-check the brokerage’s calculations. “Be sure to ask for an itemized bill of sale that indicates where the tax credits were applied,” says Gabe Shenhar, associate director of CR’s Auto. Test center. ” And make sure the racer doesn’t increase the value of the car as a result. ”
Some automakers, Hyundai, Lucid and Polestar, already incorporate full $7,500 tax credits into leases indexed to their websites. Learn more about leasing here.
Buyers of used electric cars will now get first-time advantages of a tax credit: $4,000 or 30% of the vehicle’s sale value, whichever is less. But that’s only if they buy a car from a legal dealership, and only if the vehicle hasn’t been resold after August 16, 2022. In other words, a used car owned by a single owner sold through a dealership would possibly be eligible. for a tax credit, but a two-owner car won’t. An individual car sold to an individual will also not be eligible.
The source of income threshold is reduced for buyers of used electric vehicles: $150,000 for co-filers, $112,500 for a head of household and $75,000 for an individual. But regulations about where the car is made or where the battery comes from do not apply. to used vehicles.
In addition to the previously indexed cars that did not qualify for tax credits as of April 18, 2023 due to battery and critical mineral requirements, existing and future electric cars (and two fuel-powered mobile cars) are not manufactured in North America. Chances are, you won’t qualify for a tax credit if you buy it. But that can change in the long run if your collection position is repositioned. In addition, dealers can pass on a tax credit to consumers if the vehicle is leased or purchased.
Regardless of where they are assembled, those cars have an MSRP that is too high and will not qualify for any tax credits if purchased, dealers would possibly pass along tax credits to consumers if the vehicle is leased: