Before You Buy: Knowing Your EV Tax Incentive in Advance

We summarize the rules for new privately-owned US Electric Vehicle (“EV”) tax incentives here. This excludes used EV’s, EV motorcycles, and commercial vehicles.

We are not tax professionals or accountants, so check both the IRS site and other resources. Tax credits reduce taxes payable – but cannot exceed what you owe in the year you get your vehicle. We won’t address purchases before April 18, 2023, when rules changed.  

We rely on the IRS webpage on EV Credit eligibility and calculations, which we used as our reference:  

1. Income Limit

These are income limits for eligibility for the credit: You should qualify if your Adjusted Gross Income in either the current or prior year does not exceed:

• $300,000 for married couples filing jointly 

• $225,000 for heads of households

• $150,000 for all other filers

If you beat this level in one year, but not the other, you still should qualify. 

2. Tax Credit Amount

The amount of the credit depends on when you place the vehicle in service (take delivery), regardless of the purchase date.   If your vehicle qualifies for the tax credit you should get either $7,500, if it fully qualifies, or $3,750 if it partially qualifies. 

To find the tax credit on your vehicle, check out this site

Each of the cars and trucks on this list qualifies if their sticker price is not too high. If your car has a sticker price (MSRP) over $55K, or your van, SUV or truck has a sticker price over $80K, the vehicle does not qualify for the credit.  

3. Details for Understanding How Vehicles Qualify

If your car is not on the fueleconomy.gov list, these details on how vehicles qualify are relevant:

First, the battery capacity must be high enough.  This matters primarily for plug-in hybrid vehicles, as full EVs exceed a 14 kilowatt-hour (kWh) capacity.  The battery capacity affects your maximum tax credit as follows:

Your tax credit has a $2,917 base amount ($2,500 + 417)

+ $417 for each kWh of battery capacity beyond 5 kWh, 

Up to $7,500 total

So a 7 kWh battery car gets: $2,917 + (417 *(7-5))      
                                                  $2,917    +       834             = $3,751 

And a 13kWh battery car gets: $2,917 + (417 *(13-5))
                                                      $2,917 +    3,336             = $6,253 

and over 14kWh battery capacity, the tax credit is $7,500 for all qualifying vehicles. The new EVs now on sale in the US all have 28kWh or greater battery capacity, but some plug-in hybrids have lower battery capacity.

Further, EVs also must meet new critical mineral and battery component requirements.  Half of the credit is lost for missing one of these: 

• $3,750 if the vehicle meets the critical minerals requirement only

• $3,750 if the vehicle meets the battery components requirement only

• $7,500 if the vehicle meets both

A vehicle that doesn't meet either requirement will not be eligible for any credit. Tax credits are typically $3,750 or $7,500 if both the buyer and the car qualify.

If your credit would be greater than the tax you owe, your tax bill goes to zero but you don’t get a further refund, and tax credits can’t be carried forward against future years’ taxes.  

4. Qualifying Sale

In review, to qualify, a vehicle must:

• Have a battery capacity of at least 7 kkWh

• Have a gross vehicle weight rating of less than 14,000 pounds

• Be made by a qualified manufacturer

• Undergo final assembly in North America

• Meet critical mineral and battery component requirements (as of April 18, 2023).

The sale qualifies only if:

• You buy the vehicle new, and

• The seller reports required information to you and to the IRS at the time of sale.

• Sellers are required to report your name and taxpayer identification number (=SSN) to the IRS for you to be eligible to claim the credit.

You can find your vehicle's weight, battery capacity, final assembly location (listed as “final assembly point”), and VIN on the vehicle's window sticker.  

In summary, do your homework before selecting a vehicle, know what vehicles should qualify, and get a written representation from the dealership that it meets the key points:  

• Battery Size over 7kWh

• Meets Critical Minerals requirement

• Meets Battery Components requirement

• Under 14,000 pounds weight

• Final Assembly in the USA

• MSRP below threshold ($80k / $55k)