This article is for informational purposes only, and is not intended to provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

Federal EV Tax Credit

To accelerate the adoption of electric vehicles (EVs) and plug-in hybrids (PHEVs), the US Government offers a federal EV tax credit of up to $7500 to anyone purchasing or leasing an electric car.  As one might imagine, car dealerships are excited to share the $7500 tax credit to encourage you to buy a car.  

However, dealers are much less likely to educate you about the fine print that may prevent you from accessing the full $7500 credit.  The tax credit depends on the vehicle’s manufacturing location, battery materials, and even your Adjusted Gross Income (AGI). The credit is also non-refundable, meaning that you need to have income tax liability (owe money on your taxes) to receive value from it.

Here’s a step-by-step guide to making an educated decision about electric car tax credits.

⚠️ Before we get started: This article is for informational purposes only, and is not intended to provide tax or legal advice. You should consult with a certified tax advisor before engaging in any EV transaction.

2023 EV Tax Credit: Inflation Reduction Act Update

When President Biden signed the Inflation Reduction Act on August 17, the US government renewed and expanded funding for EV tax credits through 2032. However, there additional restrictions were added along with new tax credit funding.

In April of 2023, a new rule took effect requiring that final assembly of EVs must occur in North America to qualify for a EV tax credit going forward.  Under the new Treasury rule, eligible models can receive between EV tax credits of $3,750 to $7,500, depending on whether their battery minerals, their battery components, or both meet the domestic battery content rules.

There are 23 EVs that still qualify for EV tax credits in 2023 and 2024 according to the IRS’s FuelEconomy.gov website.

Federal EV Tax Credits for Plug-in Electric and Fuel Cell Electric Vehicles Purchased in 2023 or After April 18, 2023.

Make	Model	Year	EV Tax Credit	MSRP Limit	Calculate incentives
Cadillac	LYRIQ	2023-2024	$7500	$80,000	Personalize Incentives
Chevrolet	Blazer	2024	$7500	$80,000	Coming soon
Chevrolet	Bolt	2022-2023	$7500	$55,000	Personalize incentives
Chevrolet	Bolt EUV	2022-2023	$7500	$55,000	Personalize incentives
Chevrolet	Equinox	2024	$7500	$80,000	Coming soon
Chevrolet	Silverado	2024	$7500	$80,000	Coming soon
Chrysler	Pacifica PHEV	2022-2023	$7500	$80,000	Personalize incentives
Ford	E-Transit	2022-2023		$80,000	Commercial EV. Not listed.
Ford	Escape Plug-in Hybrid	2022-2023	$3,750	$80,000	Personalize incentives
Ford	F-150 Lightning	2022-2023	$7500	$80,000	Personalize incentives
Ford	Mustang Mach-E	2022-2023	$3,750	$80,000	Personalize incentives
Jeep	Grand Cherokee PHEV 4xe	2022-2023	$3,750	$80,000	Personalize incentives
Jeep	Wrangler PHEV 4xe	2022-2023	$3,750	$80,000	Personalize incentives
Lincoln	Aviator Grand Touring	2022-2023	$7500	$80,000	Personalize incentives
Lincoln	Corsair Grand Touring	2022-2023	$3,750	$80,000	Personalize incentives
Rivian	R1S	2023	$3,750	$80,000	Personalize incentives
Rivian	R1T	2023	$3,750	$80,000	Personalize incentives
Tesla	Model 3 Standard Range Rear Wheel Drive	2022-2023	$3,750	$55,000	Personalize incentives
Tesla	Model 3 Performance	2022-2023	$7,500	$55,000	Personalize Incentives
Tesla	Model Y All-Wheel Drive	2022-2023	$7,500	$80,000	Personalize incentives
Tesla	Model Y Long Range All-Wheel Drive	2022-2023	$7,500	$80,000	Personalize incentives
Tesla	Model Y Performance	2022-2023	$7,500	$80,000	Personalize incentives
Volkswagen	ID.4	2023	$7500	$80,000	Personalize incentives

Note: If you bought your EV before April 18, 2023, you can also check EV tax credit eligibility on FuelEconomy.gov.

EV Tax Credit: Income Limit 2023

If you decide on an electric vehicle that qualifies for an EV tax credit, you also need to meet new 2023 IRS rules for Adjusted Gross Income (AGI) limits.  If you exceed these income limits, you will not qualify for an EV tax credit:

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

If you exceed income limits, the IRS allows some flexibility between tax years: 
“You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your modified AGI is below the threshold in 1 of the two years, you can claim the credit.”

If your Adjusted Gross Income still does not meet these requirements in any tax years, you might consider leasing.  A leasing company can receive an EV tax credit and may incorporate up to $7,500 in tax credit savings into your leasing package.

Don’t forget state EV rebates & tax credits

While federal EV tax credits may be less valuable and more confusing for the next couple of years, all is not lost.  EV rebates and tax credits from your state remain a steady constant.  State incentives apply to a wider range of EVs and PHEVs (plug-in hybrids) and do not have the limiting manufacturing requirements of the federal EV tax credit.

Here’s a list of states that offer generous rebates & tax credits: 

• California: up to $2,000-$7,000
• Colorado: up to $2500
• Connecticut: up to $7500
• Illinois: up to $4,000
• Massachusetts: up to $2500
• New York: up to $2000
• New Jersey: up to $4,000
• Oklahoma: up to $5,500
• Oregon: up to $2500-$7,000
• Rhode Island: up to $2,500
• Vermont: up to $4,000

To see which rebates and tax credits you qualify for, Browse EVs.

How to determine if you can use the EV tax credit?

Once you’ve determined the EV tax credit for your make and model, the next step is to determine your tax liability.  This credit applies to taxes owed in the year you buy your vehicle, so your federal tax bill will determine the maximum amount you can get back as a tax refund.  (For example, if you buy a Tesla Model Y with a $7500 tax credit in 2023, but you only owe the federal government $3000 in taxes in 2019, the maximum credit you can use is $3000.

Since the EV tax credit can only be used the tax year that you purchase your vehicle, you should check if you will have enough tax liability to use the tax credit. The easiest way for most people to estimate what you’re eligible for is to use your previous year’s tax liability. 

If you file taxes using the 1040 IRS form, Line 24, your “total tax” is your total liability for the tax year. If Line 24 exceeds $7500, you may be able to use your EV tax credit to reduce your total tax by $7500. If your Line 24, is less than $7500, you’ll still be able to reduce whatever tax liability you owe.

Payments you have already made to the IRS display on line 33 of your 1040. The difference between Line 33 and Line 24 will either appear on Line 34 as an overpayment, indicating that you’ll be receiving a refund, or on Line 37 as a balance you still owe.

If your taxable income has changed significantly between this tax year and tax last year (e.g. change in income or taxes withheld) last year’s tax liability may not be a helpful reference for you.  

⚠️ Watch out for car dealers who use phrases like ‘we guarantee you can get you the full $7500 tax credit.’  While this statement is technically true, what they’re intentionally not saying is that the tax credit can only be used on the taxes you owe.

⚠️ Also, the electric car tax credit can only be used in the tax year you purchased a vehicle.  You cannot apply unused credit to any other tax year.
⚠️ Always consult licensed CPA to get advice on your true tax liability.

How to claim your EV tax credit

Once you’ve purchased an electric vehicle, just fill out Form 8936 and submit it as part of your normal annual tax filings.  Be sure to report the tax credit from Form 8936 on the appropriate line of your tax form (e.g. Form 1040) on your federal tax return.

How long will it take to get your EV tax credit?

Any tax credit comes back to you in the form of a tax refund, so the timing of your credit is entirely dependent on when you file your taxes and when the federal government returns your refund. If you purchase your EV in January, it could take up to 18 months to see the benefits of your tax credit in your tax return.

EV Climate Loan: Getting the Most Out of Your EV Incentives

Traditional auto lenders don’t believe EVs should be financed differently than gas-powered cars, but we do.

Instead of waiting 6-18 months to get your tax credits and rebates back, our EV Climate Loan enables you to take advantage of your qualified EV tax credits and rebates upfront, lowering your loan payments by up to $200/month.  

How our EV Climate Loan works:

• Pre-qualify in minutes.
  Pick your EV and pre-qualify for all your tax credits and rebates based on personalized qualifications specific to you.
• Finance your EV for less.
  Instead of waiting 6-18 months to benefit from EV incentives, applying for an EV Climate Loan enables you to take advantage of your tax credits and rebates instantly upfront to dramatically lower your payments.
• Drive big savings anywhere.
  You can use your EV Climate Loan to purchase your new EV online or at nearly any dealership, ensuring you get the price and features you want.
• Apply incentives more easily.
  Once you drive off the lot in your new EV, EV Life helps you automate the tax credit and rebate filing process through our website–making it easier to repay the deferred incentives in your loan.

If you’re in the market for a new EV, don’t let the sticker price deter you. Let EV Life help you take advantage of every tax credit, rebate, and incentive available to you.

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