The 2023 EV Tax Credit: Everything You Need to Know

Thinking of going electric? You’re not alone.

Just a few years ago, spotting an electric car or hybrid on your commute was like your weird Uncle Terry’s ribeye order: super rare.

Mmmm . . . ribeye.

Anyway, fast-forward to today and it’s super rare to not see plenty of EVs and hybrids on the way to your favorite steakhouse.

In fact, back in 2017, only 1.4% of cars sold were electric. But in 2022, one out of every seven cars sold was an electric vehicle. Whew . . . Elon is crushing it!¹

Yep, electric cars and plug-in hybrids are here to stay, and one of the incentives the government is offering to buyers of EVs is the electric vehicle tax credit (also called the EV tax credit).

Let’s go over the details of the 2023 EV tax credit and see if it can help you save some dough this tax season.

What Is the Electric Vehicle Tax Credit?

The electric vehicle (EV) tax credit is a nonrefundable tax credit that Uncle Sam offers to eligible taxpayers who buy electric vehicles or plug-in hybrids. The EV tax credit is also sometimes called the clean vehicle tax credit. Its aim is to help encourage buyers in the market for a new car to consider an electric or plug-in hybrid.

Now, there are income limits to qualifying for the EV tax credit, and your vehicle also has to meet certain requirements (we’ll discuss all of these qualifications below). But if you meet all those qualifications, you could be looking at a credit of up to $7,500 for a new electric vehicle or up to $4,000 if you buy used. Cha-ching!

And the EV tax credit will soon be even more appealing to people looking to go electric. Starting in 2024, buyers of EVs will be able to transfer their EV tax credit amount to a qualifying dealer when they purchase. The dealer then has two choices—they can lower the price of the vehicle by that amount or give it to the customer in cash.²

How the 2023 EV Tax Credit Works

The electric vehicle tax credit works by lowering your tax bill on a dollar-for-dollar basis. So if you owe the IRS $5,000 and you qualify for an EV tax credit amount of $3,500, you’d only be on the hook for $1,500. Sweet!

But before you pop the champagne, keep in mind that this tax credit is nonrefundable, which means if it helps you get your tax bill down to $0 and you still have some of that credit amount left over, you won’t be getting it back as a refund.

Who Qualifies for the EV Tax Credit?

The EV tax credit is aimed toward people who buy an electric vehicle for business or personal use. But there are a few caveats. To qualify, you have to:

• Buy it for your own use
• Use it primarily in the U.S.

And if you want to claim the EV tax credit on a used vehicle, you also have to:

• Not be the original owner
• Have bought the vehicle for use and not for resale
• Not be claimed as a dependent on someone else’s tax return
• Not have claimed another used clean vehicle credit in the three years before the purchase date³

The biggest factor that will determine whether you qualify for the EV tax credit is your income, and more specifically, your modified adjusted gross income (MAGI).

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Yep, we know it’s a mouthful. But stick with us here. Uncle Sam often uses your MAGI to determine your eligibility for tax breaks, and it’s no different with the EV tax credit. MAGI is simply your adjusted gross income plus a few deductions (like student loan interest or tuition and fees) added back in.

When claiming the EV tax credit, you can either use your MAGI in the tax year you took delivery of your EV or your MAGI from the year before you took delivery—whichever is less.⁴

Here are the income limits we’re looking at for the EV tax credit:

Filing Status	Vehicle Condition	Modified Adjusted Gross Income (MAGI) Limit
Single	New	$150,000
Single	Used	$75,000
Married, Filing Jointly	New	$300,000
Married, Filing Jointly	Used	$150,000
Married, Filing Separately	New	$150,000
Married, Filing Separately	Used	$75,000
Head of Household	New	$225,000
Head of Household	Used	$112,5005,6

As you can tell, your income limit for the EV tax credit depends on your filing status and on whether you buy new or used.

Which Electric Vehicles Qualify for a Tax Credit?

Once you know you meet the income requirements for the EV tax credit, the next big question is which electric vehicles are eligible, especially for the full credit amount ($7,500 for new and $4,000 for used).

The good news is there are several EVs that currently qualify for the full tax credit amount, and we’ll go over those in more detail below.

The bad news? Many EVs only qualify for a partial amount of the EV tax credit, or they don’t qualify at all! And that’s all thanks to stricter rules that the IRS adopted on April 18, 2023.

Thanks a lot, Uncle Sam.

These new restrictions limit the EV credit amount according to how closely the vehicle’s battery and critical mineral sourcing follows the government’s “clean vehicle” standards. And those stricter standards really narrow the playing field for getting your money’s worth with the EV tax credit.

To qualify for the full credit amount, a vehicle 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
• Have undergone final assembly in North America
• Have an MSRP of $80,000 or less for vans, SUVs and trucks
• Have an MSRP of $55,000 or less for all other vehicles⁷

When you’re researching cars, remember that even if an EV or plug-in hybrid (PHEV) doesn’t meet all these requirements, it could still qualify for a partial amount of the EV tax credit. You can find all the information we listed above on the vehicle’s window sticker.

Here's a look at some of the most popular EVs and plug-in hybrids that are eligible for a full or partial credit if delivered on or after April 18, 2023:

Make	Model	Tax Credit Amount	MSRP Limit
BMW	X5 xDrive50e (2024)	$3,750	$80,000
Cadillac	LYRIQ (2023–2024)	$7,500	$80,000
Chevrolet	Blazer (2024)	$7,500	$80,000
	Bolt (2022–2023) Bolt EUV (2022–2023)	$7,500	$55,000
	Equinox (2024)	$7,500	$80,000
	Silverado (2024)	$7,500	$80,000
Chrysler	Pacifica PHEV (2022–2024)	$7,500	$80,000
Ford	E-Transit (2022–2023)	$3,750	$80,000
	Escape (2022–2023)	$3,750	$80,000
	F-150 Lightning (standard and extended range battery) (2022–2023)	$7,500	$80,000
	Mustang Mach-E (standard and extended range battery)    (2022–2023)	$3,750	$80,000
Jeep	Grand Cherokee PHEV 4xe (2022–2024)	$3,750	$80,000
	Wrangler PHEV 4xe (2022–2024)	$3,750	$80,000
Lincoln	Aviator Grand Touring (2022–2023)	$7,500	$80,000
	Corsair Grand Touring (2022–2023)	$3,750	$80,000
Nissan	Leaf S (2024)	$3,750	$55,000
	Leaf SV PLUS (2024)	$3,750	$55,000
Rivian	R1S (2022–2023) R1T (2022–2023)	$3,750	$80,000
Tesla	Model 3 Long Range All-Wheel Drive (2023)	$7,500	$55,000
	Model 3 Performance (2022–2023)	$7,500	$55,000
	Model 3 Standard Range Rear-Wheel Drive (2022–2023)	$7,500	$55,000
	Model X Long Range (2023)	$7,500	$80,000
	Model Y All-Wheel Drive (2022–2023)	$7,500	$80,000
	Model Y Long Range All-Wheel Drive (2022–2023)	$7,500	$80,000
	Model Y Performance (2022–2023)	$7,500	$80,000
	Model Y Rear-Wheel Drive (2023)	$7,500	$80,000
Volkswagen	ID.4 AWD PRO (2023) ID.4 AWD PRO S (2023) ID.4 AWD PRO S PLUS (2023)	$7,500	$80,000
	ID.4 PRO (2023) ID.4 PRO S (2023) ID.4 PRO S PLUS (2023)	$7,500	$80,000
	ID.4 S (2023)	$7,500	$80,000
	ID.4 STANDARD (2023)	$7,500	$80,0008

As you can see, the EV tax credit can save you some money when Uncle Sam comes to call, but time out—no tax credit can cover the costs of depreciation on a new car. The minute you drive a new car off the lot, its value starts dropping faster than T Swift’s newest single. We’re talking a 9–11% loss in value on day one!⁹ Only millionaires can afford to take that kind of financial hit, so until you’ve got a seven-figure net worth, stick with reliable, used cars.

The EV tax credit might save you some money on a down payment starting in 2024, but it’s a drop in the bucket when you look at the total cost of a new car, especially when you can’t afford to pay for it in cash.

How the Electric Vehicle Tax Credit Is Calculated

Uncle Sam looks at two important things when deciding which vehicles qualify for the EV tax credit: battery and critical minerals sourcing. More specifically, the IRS looks at where the battery is assembled or manufactured, and where the minerals critical to the battery are extracted or processed.

See, the government wants to make sure as much of the assembly and manufacturing of EVs stays in the U.S. or within a country we have a free-trade agreement with.

So, here’s how those two halves of the EV tax credit play out:

Battery Requirement

The battery requirement portion of the EV tax credit is worth up to $3,750. To be eligible, a certain percentage of the vehicle’s battery must be assembled or manufactured within North America. The percentage threshold for 2023 is just 50%, but those thresholds are set to gradually rise over the next several years until it finally caps at 100%:

• 2024–2025: 60%
• 2026: 70%
• 2027: 80%
• 2028: 90%
• 2029 through 2032: 100%¹⁰

Critical Minerals Sourcing

To receive the remaining $3,750 of the EV tax credit, vehicles have to meet Uncle Sam’s requirements for critical minerals sourcing. A certain percentage of all the critical minerals used in the battery must be extracted or processed within the U.S. or a country we have a free-trade agreement with. Like the battery requirement, the percentage thresholds are set to rise from 2023 to 2032:

• 2023: 40%
• 2024: 50%
• 2025: 60%
• 2026: 70%
• 2027 through 2032: 80%¹¹

EVs Delivered Prior to April 18, 2023

Both the battery and critical minerals requirements were part of the new rules for the EV tax credit that went into effect on April 18, 2023. If your qualifying EV was purchased and delivered before that date, these threshold requirements don’t apply to you.

Instead, your EV tax credit amount is calculated like this:

• $2,500 if the battery has at least a 7-kilowatt-hour capacity, plus . . .
• Up to $5,000 for additional kilowatt hours above the base requirement of 7 kilowatt hours.¹²

Changes Coming to the 2024 EV Tax Credit

We mentioned it above, but it’s worth repeating: Big changes are coming for how you can use the EV tax credit to save some dough.

As part of the Inflation Reduction Act, starting on January 1, 2024, buyers of new or used EVs can choose to transfer their EV tax credit amount (up to the full $7,500 for new and $4,000 for used) to a car dealer when they make their purchase.

The whole point of this transfer option is to help lower the price of the car by letting you use the credit amount as a down payment of sorts. Sounds great, right? But keep in mind that if you transfer your credit amount to a dealer and drive away in a shiny new car, you won’t be using the EV tax credit to save money on your taxes. You’ll have already spent your savings as a down payment!¹³

Information You Need From a Seller to Claim the EV Tax Credit

When you purchase an electric vehicle from a dealership or a private owner, there’s some important information they should provide that you’ll need to claim the EV tax credit. On the day of the purchase, the seller must give you, the buyer, a report containing the following:

• Name and taxpayer identification number (TIN) of the seller
• Name and TIN of the buyer
• Date of sale and the agreed-upon price
• Verification of the maximum tax credit the vehicle is eligible for
• The vehicle’s identification number (VIN)
• The vehicle’s battery capacity
• Verification that the taxpayer is the original user of the vehicle
• A statement of declaration from the seller under penalty of perjury

Like we said above, if you buy an EV starting on January 1, 2024, you’ll have the option of deducting your EV tax credit amount from the purchase price at eligible dealerships. And in that case, the seller should also provide the amount of that transfer credit applied to the purchase in this report.¹⁴

How to Claim the Federal EV Tax Credit

Claiming the EV tax credit is super easy. If you qualify for the credit, simply file Form 8936 when you file your federal taxes. This tax form will help you calculate your EV credit amount.

To fill out the form, you’ll need to provide some information about your EV:

• Year, make and model
• Vehicle identification number (VIN)
• Date when vehicle is placed in service (You can only claim the EV tax credit for the tax year when the vehicle is delivered to you, not necessarily the year you purchase it. So if you buy a qualifying EV in 2023 but you won’t receive it until early 2024, you’ll have to claim the credit on your 2024 tax return.)

Once you provide those details, you’ll use Part II of Form 8936 to calculate your credit amount if you used the EV for your business, or Part III if you bought your EV for personal use.¹⁵

Leasing and the EV Tax Credit

Okay, let’s just admit it—car prices are through the roof right now. Those sticker prices at your local dealership are cray-cray, and the average monthly car payment in October 2023 has spiked to $729! That’s up 9% from 2022.¹⁵

Higher payments and sticker prices mean more and more people are letting desperation get the better of them. They’re willing to lease a car when they can’t afford to pay in cash or don’t want to finance.

But take it from us—leasing an electric vehicle is a terrible idea, and here’s why:

• You can’t claim the EV tax credit on a lease. When you lease a car, you’re not actually purchasing it because it’s considered a commercial vehicle already owned by the business (aka the dealership or leasing company) that purchased it from the manufacturer. This allows the business to qualify for another tax credit—the commercial vehicle tax credit. Yeah, you read that right. You don’t get to claim a tax credit for that leased vehicle, but the dealership does! That should put a sour taste in your mouth toward leasing an EV, but if you need more convincing, just keep reading.
   
• Depreciation is factored into the payment. All cars go down in value (or depreciate), and if you lease a car, especially an EV or PHEV, that loss of value has to be factored into the lease payment (or the leasing company loses money). And they’re not going to make a deal where they lose money, so guess whose bank account gets to take that hit every month? Yep, you guessed it.
   
• It’s hard and expensive to get out of a lease early. If you get tired of the car or need to get rid of those monthly payments, you can’t just return it to the dealership whenever you want. You signed a lease agreement, and if you break it for any reason, you’re in for a huge headache and a bunch of fees.
   
• Dealers make a ton of money on interest from leases. They can easily mark up the interest rate (known as the “money factor” on a lease), and they’re not even required to tell you how much you’ll be paying. Like the name suggests, this dirty little secret about leases puts more money in the dealer’s pocket by taking it out of yours. No thanks!
   
• You pay more money in the long run. Listen, there’s a reason dealers push customers to lease a car. They make a lot more money off a lease than if you pay with cash or check! So unless you’re into helping dealerships make money at your expense, avoid leasing like the plague!

EV Tax Credit vs. FCEV Tax Credit

We’ve gone over all the details you need to know for the EV tax credit, but if you’re thinking of going electric, the FCEV tax credit might pique your interest too. It stands for fuel cell electric vehicle tax credit, and its purpose is similar to the EV tax credit—to offer a tax break to buyers of fuel cell electric vehicles.

Now, fuel cell vehicles haven’t exploded in popularity at the same rate as EVs or plug-in hybrids, but they’re gaining traction in several states (like California and New York) that offer generous rebates and incentives for people who nerd out on those tech-heavy fuel cell vehicles.

Most of the income and vehicle requirements that we’ve already covered for the EV tax credit are the same for the FCEV tax credit:

• Income limits are the same
• Maximum credit amounts for new and used vehicles are the same
• MSRP limits are the same
• Vehicle battery and sourcing qualifications are the same, with one minor exception under the vehicle’s sourcing rules: FCVs (fuel cell vehicles) do not have to be made by a qualified manufacturer to be eligible.

Get Help With the EV Tax Credit

Whew! That was a ton of information on the EV tax credit, but if you’ve still got questions, don’t worry. You can get in touch with a RamseyTrusted tax pro for more details. They’re tax experts who can walk you through the rules and regulations for the electric vehicle tax credit and see if it can help you save money next tax season!

If you’re ready to start filing and claim your EV tax credit, check out Ramsey SmartTax today!