This article on federal electric vehicle tax credits (aka “Clean Vehicle Tax Credits”) has been updated for 2022 and 2023 to give interested readers everything they’d want to know on EV tax credits both pre and post Inflation Reduction Act changes. Why worry about pre-Inflation Reduction Act? If you bought an electric car in 2022 and are completing your 2022 tax return – you’ll want those details for reference. Everyone else reading this is probably interested in what the post-Inflation Reduction Act electric vehicle tax credits for 2023 (and beyond) look like – and you’ll get a full overview here. If you’re interested in purchasing a new vehicle, also be sure to check out my breakdown of most efficient vehicles, cheapest new vehicles, and cheapest electric vehicles in the U.S. market for 2023.
Here’s what we’ll cover in this article:
Pre-2023 Federal Electric Vehicle Tax Credit Overview (Pre-Inflation Reduction Act)
Starting in 2010, with the passage of the American Recovery and Reinvestment Act of 2009 (in the wake of the Great Recession), almost every all-electric and plug-in hybrid vehicle leased or purchased new has been eligible for a federal electric vehicle tax credit (officially called the “Qualified Plug-In Electric Drive Motor Vehicle Credit”) of up to $7,500.
Pre-Inflation Reduction Act going into effect at the beginning of 2023, federal electric vehicle tax credits were pretty straightforward. Almost every battery electric vehicle (BEV), fuel cell electric vehicle (FCEV), and plug-in hybrid electric vehicle (PHEV) sold in the U.S. market was eligible for at least a partial credit, with some requirements:
- Electric vehicle tax credit amount was $2,917 for a vehicle with a battery capacity of at least 5 kilowatt hours (kWh), plus $417 for each kWh of capacity over 5 kWh (up to a $7,500 max credit). With this rule, most BEVs and FCEVs were eligible for the full $7,500 credit, while the majority of PHEVs were eligible for less than the full $7,500 credit amount.
- The vehicle had to be new.
- The vehicle must have had a gross vehicle weight rating (GVWR) of not more than 14,000 lbs.
- Those claiming the credit had to be the original owner.
- The vehicle is acquired for use or lease by the taxpayer, and not for resale. (The credit is only available to the original purchaser of a new, qualifying vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.)
- Those claiming the credit had to buy it for their own use, not for resale, and use it primarily in the United States.
- The vehicle was used mostly in the United States.
- The tax credit was non-refundable (taxpayers with a net negative tax obligation were unable to claim it in the form of a tax refund).
- If you bought and took delivery of a qualified electric vehicle between August 17, 2022 and December 31, 2022, the same rules apply, plus the vehicle also had to undergo final assembly in North America.
- Once automakers hit the 200,000 electric vehicles sold in the U.S. market landmark, the eligibility for their electric vehicles to receive a credit was phased out.
EV Tax Credits for GM, Tesla, and Toyota (Partially) Were Phased Out
On that last point, GM and Tesla’s federal electric vehicle tax credits were notably entirely phased out prior to 2022 because they previously hit the 200,000 electric vehicles sold in the U.S. market landmark a few years earlier.
Toyota hit the 200,000 vehicles sold landmark in Q2 of 2022, so Toyota vehicles were eligible for the the full credit amount of up to $7,500 through the end of Q3 (end of September) of 2022. In Q4 of 2022, qualified Toyota vehicles were eligible for 50% of up to the full $7,500 credit amount.
How Much is the 2023 Electric Vehicle Tax Credit (Post-Inflation Reduction Act)?
One big thing hasn’t changed with the passage of the Inflation Reduction Act – the maximum amount of the qualified electric vehicle tax credit: it’s still up to $7,500. Mostly everything else has changed, however…
2023 Federal Electric Vehicle Tax Credit Overview: What’s New, Post Inflation Reduction Act?
The Inflation Reduction Act (signed in 2022 and started in 2023) applies to vehicles purchase from the start of 2023 through the end of 2032 (10 years). The Inflation Reduction Act made a number of big changes to the BEV, PHEV, and FCEV electric vehicle federal tax credits (now referring to them as “Clean Vehicle Tax Credits”) that I’ll summarize here and break down in more detail further on. The big 5 changes are:
- Changes to vehicle eligibility: raised minimum battery capacity to 7kWH, added new MSRP caps on eligible vehicles, added a final assembly in North America requirement, created new battery and mineral sourcing requirements.
- Removed automaker vehicles-sold phaseouts: a huge win for GM, Tesla, and Toyota – whose vehicles are newly re-eligible for the full credit, provided they meet all other criteria.
- Added taxpayer income eligibility caps: income can’t exceed set limitations for both new and used vehicles.
- Used electric vehicles are now eligible for a partial electric vehicle tax credit: this is a huge change and should make EV ownership more accessible. Price caps, buyer income limits, vehicle age, and other criteria applies.
- Starting in 2024, dealerships will be able to offer the value of a tax credit up front to consumers.
Let’s expand on each of these, since they are all important.
2023 Electric Vehicle Tax Credit Eligibility, Post Inflation Reduction Act:
To be eligible for up to the full $7,500 Clean Vehicle Tax Credit, new vehicles now must:
- Have a battery capacity of at least 7 kilowatt hours (versus 5kWh previously).
- Be made by a qualified manufacturer (excluding FCEVs). Roughly half of the automakers operating in the United States have provided a list of vehicles to the IRS, the other half have not.
- Have a maximum vehicle MSRP of $80,000 for vans, sport utility vehicles and pickup trucks and $55,000 for other vehicles.
- Undergo final vehicle assembly in North America.
- Meet certain battery and critical minerals sourcing criteria.
Qualified Vehicles Must Undergo Final Vehicle Assembly in North America
This rule went into effect immediately after the Inflation Reduction Act is passed and will immediately disqualify many EVs from being eligible for the tax credit. Many automaker operating in the United States currently do not manufacture their electric vehicles in North America, including MINI, Kia, Hyundai, Toyota, Mazda, and others.
One of the upsides of the Inflation Reduction Act is that it will result in a number of automakers and suppliers moving their manufacturing and component and materials sourcing to the United States. Hyundai and Kia have already announced they are moving some EV assembly and battery operations to the United States as soon as 2024.
How to Find Out Where a Vehicle is Manufactured
This can be seen next to the VIN number on a vehicle’s dashboard, and VIN numbers are coded to included country of origin. If you are unsure, you can find a VIN lookup here to determine what country the vehicle was assembled in. The IRS has defined “North America” as the United States, Canada, and Mexico. You can also refer to the list shared later in this article.
Inflation Reduction Act Clean Vehicle Credit Battery and Minerals Requirements
That battery and minerals requirements for vehicles eligible for the Clean Vehicle Tax Credit may sound minor, but it’s an important one. It has the potential to at least temporarily dramatically limit which electric vehicles are eligible for the full tax credit.
New Clean Vehicle Battery Component Requirement:
A new requirement that a percentage of components contained in the battery were manufactured or assembled in North America at the following levels:
- 2023: 50%+
- 2024: 60%+
- 2025: 60%+
- 2026: 70%+
- 2027: 80%+
- 2028: 90%+
- 2029 (and after): 100%
Otherwise eligible vehicles that meet this requirement are eligible for $3,750 (half of the full $7,500 tax credit).
Inflation Reduction Act New Clean Vehicle Critical Minerals Requirement:
A new requirement that critical minerals used in the battery must be extracted or processed in the United States, or in any country with which the United States has a free trade agreement in effect, or recycled in North America, at the following percentages:
- 2023: 40%+
- 2024: 50%+
- 2025: 60%+
- 2026: 70%+
- 2027 (and after): 80%+
Otherwise eligible vehicles that meet this requirement are eligible for $3,750 (half of the full $7,500 tax credit).
If otherwise eligible vehicles meet both the battery and minerals requirements, they are eligible for the full $7,500 tax credit.
With the New Battery and Critical Minerals Requirements – Should you Buy Now or Wait?
The IRS has said that it needs more time to provide guidance on which vehicles are eligible for the full credit based on these battery and minerals requirements. They specifically state,
The critical mineral and battery component requirements under § 30D(e) will apply for vehicles placed in service after proposed guidance on these requirements is issued. The publication of these FAQs is not the issuance of proposed guidance with respect to the critical mineral and battery component requirements under § 30D(e) and does not trigger the applicability of those requirements. The Treasury Department and the IRS will explicitly identify when they have issued proposed guidance with respect to the critical mineral and battery component requirements under § 30D(e). However, vehicles ordered or purchased prior to but placed in service after Treasury and the IRS issue this proposed guidance will be subject to the critical mineral and battery component requirements. This proposed guidance is expected to be issued in March 2023.
Update: the IRS rolled out new guidance in April of 2023. Here’s a list of EVs still eligible for the tax credit with the new battery requirements.
It’s very possible that most, if not all, of the current EVs available for sale in the U.S. market won’t meet the battery and minerals requirements now or in the near future until their supply chains can adjust. The likely consequences of this well-intentioned provision (and the “final assembly in North America” provision) are:
- short term: far fewer vehicles eligible for the full $7,500 electric vehicle tax credit.
- long term: increasingly more vehicles eligible for the full $7,500 electric vehicle tax credit and profound U.S. economic benefits and job creation.
Bottom line: if you know you have an electric vehicle in mind that you want to purchase this year and it meets all of the other eligible criteria, it might be wise to make that purchase before the IRS issues their guidance in March, as it’s not guaranteed that it will be eligible after. But, do your homework before buying, not after. If not, I’d suggest waiting until the vehicle you are interested in purchasing is specifically approved/added to the eligible vehicle list after the IRS issues its guidance.
Inflation Reduction Act Vehicle Automaker Phaseouts No Longer Apply in 2023 & After
There are no more automaker vehicles sold phaseouts. Automakers that had their electric vehicle tax credits phased out due to hitting the 200,000 vehicles sold in the U.S. market mark (GM, Tesla, and Toyota) are newly re-eligible for up to the full federal EV tax credits, provided the vehicles fall under the new MSRP guidelines and all other criteria are met.
The Inflation Reduction Act Added Taxpayer Modified Adjusted Gross Income (MAGI) Eligibility Caps for New Clean Vehicles in 2023 & After
A taxpayer’s eligibility to claim an electric vehicle tax credit may be limited by modified adjusted gross income (MAGI) caps. Only individuals having a MAGI that does not exceed the following thresholds are eligible for the tax credit:
- Married Filing Jointly: $300,000
- Married Filing Separately: $150,000 (1 of 2 taxpayers with income below $150,000 can claim, but not both)
- Head of Household: $225,000
- Single Filers: $150,000
Used Electric Vehicles are Now Eligible for a Partial Used Clean Vehicle Tax Credit in 2023 & After
Tax credits for the purchase of used electric vehicles is a fairly big change brought by the Inflation Reduction Act, making the credit more accessible for lower income taxpayers. Full details can be found here.
What is the Amount of the Used Clean Vehicle Tax Credit?
- $4,000, or
- the amount equal to 30% of the sale price (whichever is less)
What Used Clean Vehicles are Eligible for a Tax Credit? (Requirements)
To qualify, a vehicle must meet all of these requirements:
- Have a sale price of $25,000 or less
- Have a model year at least 2 years earlier than the calendar year when you buy it. For example, a vehicle purchased in 2023 would need 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
Qualified battery electric vehicles (BEV), plug-in hybrid electric vehicles (PHEV), or fuel cell vehicles (FCEV), including cars and light trucks are eligible. Here’s a list of qualified used vehicles.
Qualified Used Clean Vehicle Sales Requirements
The sale qualifies for a tax credit only if:
- You buy the vehicle from a dealer
- For qualified used EVs, the dealer reports required information to you at the time of sale and to the IRS.
Qualified Used Clean Vehicle Buyer Qualifications
To qualify for the used electric vehicle tax credit, you must:
- Be an individual who bought the vehicle for use and not for resale
- Not be the original owner
- Not be claimed as a dependent on another person’s tax return
- Not have claimed another used clean vehicle credit in the 3 years before the purchase date
Used Clean Vehicle Buyer Income Level Caps
In addition, your modified adjusted gross income (AGI) may not exceed:
- $150,000 for married filing jointly or a surviving spouse
- $112,500 for heads of households
- $75,000 for all other filers
You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your income is below the threshold for 1 of the two years, you can claim the credit.
Lists of Vehicles Eligible for Electric Vehicle Tax Credits in 2022 and 2023 (New and Used)
The list of vehicles eligible for the electric vehicle tax credit in 2022 and 2023 varies based on when the vehicle was purchased:
- List of new electric vehicles eligible for tax credit in 2022, after 1/1/22 and before 8/17/22, pre-Inflation Reduction Act: see here
- List of new electric vehicles eligible for tax credit in 2022, after 8/16/22 and before 12/31/22 that meet assembled in North America criteria, pre-Inflation Reduction Act: see here
- List of new electric vehicles eligible for tax credit in 2023, post-Inflation Reduction Act: see here
- List of used electric vehicles eligible for the Clean Vehicle Tax Credit, post-Inflation Reduction Act: see here
Where & How to Claim Electric Vehicle Tax Credits in 2022 or 2023
For both 2022 (pre-Inflation Reduction Act) and 2023 (post-Inflation Reduction Act), eligible taxpayers will need to fill out IRS Form 8936, for the “Qualified Plug-in Electric Drive Motor Vehicle Credit”. As of right now, the revised form for 2023 has not been released. Note that the electric vehicle tax credit can be used toward the alternative minimum tax (AMT).
If the qualifying vehicle is purchased for business use, the credit for the business use of an electric vehicle is reported on Form 3800, General Business Credit.
All of the best tax software and even cheapest ways to e-file will have versions of their product that will walk you through electric vehicle tax credit eligibility and the claim process. Here’s some best-available partner discounts for them (discount applied automatically at link):
- H&R Block
- Cash App Taxes (formerly “Credit Karma Tax”, now owned by Square/Cash App)
Is the Electric Vehicle Tax Credit Refundable in 2022 or 2023?
For both 2022 (pre-Inflation Reduction Act) and 2023 (post-Inflation Reduction Act), the federal electric vehicle tax credit is a non-refundable tax credit. A non-refundable tax credit can reduce your tax liability to $0, however it cannot result in a refund beyond that.
State Electric Vehicle Tax Credits & Rebates May be Available Too
I have published and maintain a thorough list of state electric vehicle tax credits and rebates as well. There are currently 14 states with major tax credits or rebates. These tax credits are in addition to any federal tax credit. But, please do your research, as they can and do frequently expire if funds run dry.
Take Note of the Enhanced Federal Energy Tax Credits & New Rebates from the Inflation Reduction Act
If you’re interested in EV-related tax credits, rebates, and incentives, you should definitely take note of the new federal energy tax credits and rebates as well. There are significant updates that resulted from the Inflation Reduction Act available (including solar panels, electrical panels, battery storage, and EV charging) that could make the prospect of electric vehicle ownership an even bigger cost-saving venture. The linked-to article is a complete guide to the 2 improved energy tax credits and 2 new energy rebates available to Americans.