Electric Vehicle Tax Credits 2023: What You Need to Know | Edmunds

How can I tell if an EV qualifies for a tax credit?

There are a few questions you’ll need to answer to determine if an electric car qualifies for the new tax credits. The maximum buyer credit for new vehicles is $7,500, provided that a number of requirements are met. Click on any of the links below to jump to the information you’re looking for, or keep scrolling to get all the details.

1. Was the vehicle assembled in, and sourced from, the right countries?
2. Is the MSRP below the price cap?
3. Is my income below the income cap?
4. What if I’m leasing?
5. Are there tax credits for used EVs?
6. Which new vehicles qualify for the federal EV tax credit?
7. How do I claim the EV tax credit?
8. FAQs

1. Was the vehicle assembled in, and sourced from, the right countries?

The final assembly of the new vehicle must occur in North America (i.e., the U.S., Canada or Mexico). This is the gateway requirement for the federal EV tax credit — if the answer is no, the EV simply won’t qualify (unless you’re leasing, in which case please refer to the fourth question below). This rule went into effect on August 16, 2022, and affects vehicles purchased through 2032.

If the vehicle meets this requirement, you can think of the $7,500 federal EV tax credit as being split into two halves — critical battery minerals and battery components — each worth $3,750 and subject to requirements of its own. This has been the case since April 18, 2023; if you bought an EV in 2023 prior to April 18, you only have to worry about the gateway requirement of final assembly in North America in order to get the full $7,500 credit on your 2023 tax return. For those buying after April 18, we’ll go through each half in turn, though please note that the EPA has already done the math on the percentages below to determine which cars are eligible — you won’t have to figure it out yourself.

• Critical battery minerals: To qualify for this $3,750 credit, at least 40% of the critical minerals in the vehicle’s battery must have been either recycled in the U.S. or extracted or processed there (or in any country that has a free trade agreement with the U.S.). After that, the required percentage increases to 50% in 2024, 60% in 2025, 70% in 2026 and 80% in 2027.
• Battery components: To qualify for the remaining $3,750 credit, at least 50% of the EV’s battery components must be manufactured or assembled in the U.S. (or in any country that has a free-trade agreement with the U.S.). After that, the percentage increases to 60% in 2024-2025, 70% in 2026, 80% in 2027, 90% in 2028 and 100% in 2029.

We should also note that beginning on January 1, 2024, a vehicle will be ineligible if any of the battery’s components were sourced from a “foreign entity of concern,” which includes China and Russia as of this writing, as well as Iran and North Korea. As of January 1, 2025, this exclusion will extend to cover critical battery minerals too. That’s a big deal given China’s outsized role in the minerals supply chain to date. For the rest of 2023, though, there are no such blacklist exceptions.

2. Is the MSRP below the price cap?

The following price caps by vehicle type became effective as of January 1, 2023 and refer specifically to the manufacturer’s suggested retail price (MSRP):

3. Is my income below the income cap?

The income limits are based on modified adjusted gross income (MAGI), which is roughly the adjusted gross income with certain allowable deductions added back in, for the current or prior tax year. Depending on filing status, the limits are:

4. What if I’m leasing?

Leased electric cars or plug-in hybrids from dealerships are considered “commercial vehicles” under IRS regulations. This means that the full $7,500 tax credit will go to the company that leased it to you, which is usually the automaker’s captive finance arm. In other words, the automaker itself effectively gets the benefit of the tax credit. Moreover, leased EVs and PHEVs are not subject to the major restrictions detailed above — there are no limitations regarding final assembly, battery sourcing or vehicle pricing, while the caps on buyer income are irrelevant because there is no purchase in the case of a lease.

There’s also no obligation on the automaker’s part to pass along any savings to you, but in practice, many automakers seem to be offering at least some kind of discount on EV leases as a direct result of this loophole. It probably won’t last forever, so if you’re interested in leasing vehicles such as the Hyundai Ioniq 5, Lucid Air, Toyota bZ4X and others, we recommend checking with your local dealership to see if there are loophole-driven lease discounts.

5. Are there tax credits for used EVs?

The tax credit for used EVs will be calculated based on either 30% of the vehicle’s value or $4,000, whichever is less. As we mentioned earlier, there are no assembly requirements or battery component percentages for used EVs and PHEVs. The rules for used EVs went into effect on January 1, 2023, and are as follows:

• Price limit for used vehicles
  There is a hard eligibility ceiling at a sale price of $25,000 for all used EVs regardless of type.
• Income limits for used vehicles
  As with new vehicles, the buyer’s income is measured by modified adjusted gross income (MAGI). By filing status, the limits are:
  

  Filing status	Maximum eligible income (MAGI)
  Joint tax returns or surviving spouse	$150,000
  Head of household	$112,500
  Individual or any other filing status	$75,000

• Other eligibility requirements for used EVs

1. The vehicle must be at least two model years older than the calendar year in which it is purchased.
2. The used EV tax credit will only apply once in the vehicle’s lifetime. Subsequent owners will not be eligible.
3. Once a buyer has taken the federal used EV credit, they are not eligible for another credit for three years. 
4. The vehicle must be for personal use and “not for resale.”
5. The vehicle must be purchased through a dealer.
6. Only an individual may claim the used EV tax credit. Businesses are excluded.

6. Which new vehicles qualify for the federal EV tax credit?

The following vehicles should qualify for the federal EV tax credit because they are assembled in North America and meet the critical minerals and battery component requirements. Notably, while popular vehicles such as the Nissan Leaf and Genesis GV70 Electrified are manufactured in North America, they do not meet the new mineral and battery requirements that went into effect in April 2023. Consequently, they have been removed from the list of eligible vehicles, although they may reappear later as automakers restructure their supply chains.

Whether or not the vehicle you’re interested in is on the list, it’s a good idea to double-check its build location to be sure. You can run the vehicle identification number (VIN) through a VIN decoder and look for the country name in the “Plant Information” field at the bottom of the page, or else simply check the window sticker if you have access.

It’s also worth noting that the vehicle must be purchased for “original use” in order to qualify for the federal tax credit, meaning that the vehicle is for use by the taxpayer. You cannot buy the vehicle and then immediately resell it in hopes of getting the tax credit.

Our list is based on data from the U.S. Department of Energy that was current as of June 5, 2023 and affects new cars placed in service from April 18, 2023 and onward. The list will likely change in the coming months and years to include more models. We will strive to keep our list up to date as vehicle manufacturers continue to submit the applicable vehicle identification information to the relevant government agencies and more information becomes available. For those who purchased a vehicle between December 31, 2022 and April 17, 2023, the list of eligible vehicles will vary. Take a look at the EPA’s website for the list of vehicles.