Federal Incentives

Overview

Many EVs purchases are eligible for federal tax credits, although the eligibility details can make it challenging for some to take full advantage.

The Inflation Reduction Act (IRA) passed on August 16, 2022 with significant changes to eligibility requirements for clean vehicle federal tax credits. Effective on passage, vehicles produced outside North America were no longer eligible for a credit on a consumer purchase. Additional IRS rules related to battery materials sourcing and production became effective on April 18, 2023 and more changes will be effective January 1, 2024. The information provided on this page and other Drive Electric Vermont resources contain the current requirements and incentive amounts as best we're aware. Our vehicle comparison tool has estimated new EV purchase tax credit amounts for each model based on a current purchase. This information may change as IRS rules are clarified and automakers work to certify their EV models meet federal requirements.

Please consult a tax professional if you have questions related to claiming a credit through this program.

The sections below include more detailed information on the federal tax credit eligibility requirements for new, used, and commercial EV purchases as well as charging infrastructure installations.

New EV Tax Credits

Federal tax credits up to $7,500 are available depending on the vehicle. The credit can only be claimed in the tax year the vehicle was put into service. The annual federal tax liability of the buyer may be a limiting factor in how much benefit you can receive. Many changes to this incentive occurred with the passage of the federal Inflation Reduction Act.

For leased electric vehicles, the federal tax credit is claimed by the leasing company (since they are the owner of the vehicle). The leasing company may pass through a portion or all of the benefit to you as part of the lease deal. This may result in a lower down payment and/or lower monthly payments. A summary of the eligibility requirements is included below. The IRS' Credits for New Clean Vehicles Purchased in 2023 or After resource provides more details on qualifying for and claiming this credit. The IRS also offers a frequently asked questions resource on the new clean vehicle tax credits.

New Requirements Effective January 1, 2024 For vehicles placed in service on or after January 1, 2024, the credit amount depends on the vehicle meeting the federal critical minerals requirement ($3,750) and/or the battery production requirement ($3,750). Some EVs qualifying for tax credits on 2023 purchases may not qualify in 2024, or amounts may be reduced. Please consult the latest information available from automakers and/or the IRS before purchasing. Dealers will be able to pass through credits at the point-of-sale in 2024, but are not required to do so. See below for more details.

New EV Requirements

  1. Manufacturing Origin - Effective on IRA passage, vehicles must have final assembly completed in North America to be eligible for a consumer purchase tax credit. This requirement eliminated many popular EV models from the tax credit, although some may return in a few years if their manufacturing moves to North America. This IRS resource contains information on EVs currently manufactured in North America that may be eligible. Some automakers are producing their EVs in factories in North America and outside North America. For example, VW makes the ID.4 in Germany and Tennessee. Only vehicles with final assembly in North America will be eligible for the credit. The IRS recommends using the National Highway Traffic Safety Administration's (NHTSA) Vehicle Identification Number (VIN) decoder to determine the final assembly location for a particular vehicle if you intend to claim a credit.
  2. Price Caps - EVs must have a Manufacturer's Suggested Retail Price (MSRP) of $55,000 or less for passenger cars or $85,000 for SUVs, pick-up trucks and vans to be eligible starting on January 1, 2023. As stated in an IRS resource, the MSRP used to determine eligibility is the sticker price of the vehicle from the automaker, including any manufacturer-installed options. It does not include destination fees, taxes, or dealer-installed options. The IRS listing of eligible new vehicles includes information on which price cap applies to individual models (car, SUV, truck or van).
  3. Amount of the Credit - $3,750 of the credit amount is determined by whether enough of the minerals used in the battery were sourced from the USA or a free trade partner and another $3,750 is based on whether the battery components meet requirements for North American production. The US Treasury rulemaking on battery materials and production requirements took effect for EVs delivered on or after April 18, 2023. Purchasers must have taken delivery of an EV by April 17th to be eligible under the old rules. Many EVs formerly eligible for a credit do not currently qualify for a federal tax credit. A full list of eligible vehicles is available at FuelEconomy.gov. Additional requirements related to the origin of battery materials may further reduce tax credit for EV purchases made in 2024. Please consult the IRS' clean vehicle tax credit resource for the latest details.
  4. Income Eligibility - Non-commercial purchasers must meet Adjusted Gross Income (AGI) eligibility requirements of $150,000 or less for individual filers or $300,000 or less for joint filers starting January 1, 2023. Eligibility is determined by the lower of the AGI in the year the vehicle was placed in service or the year prior.
  5. Dealer Reporting / Transferable to Dealers - The dealer must provide a report to you at the time of sale and to the IRS with your taxpayer ID for you to be eligible to claim a credit. Starting in January 2024, purchasers will be able to work through a participating dealership to have the value of the credit passed through at the point of sale. This could be especially helpful for EV purchasers with limited tax liability who previously wouldn't have been able to take full advantage of the incentive as the IRS has indicated those purchases will be able to get the full credit amount passed through, regardless of tax liability.

Used EV Tax Credits

A federal tax credit of 30% of the purchase price, up to $4,000 is available to used EV purchasers if certain requirements are met. The credit can only be claimed in the tax year the vehicle was put into service. The annual federal tax liability of the buyer may be a limiting factor in how much benefit you can receive. This program is for vehicles placed in service starting January 1, 2023.

A summary of the eligibility requirements is included below. The IRS' Used Clean Vehicle Credit resource provides more details on qualifying for and claiming this credit.

Used EV Requirements

  1. Manufacturing Origin - There are no manufacturing origin requirements for the used EV tax credit.
  2. Price Cap - EVs must have a sale price of $25,000 or less to qualify for a credit.
  3. Vehicle Requirements - To qualify, a vehicle must meet all of the following requirements:
    • 2022 or earlier model year for used EVs purchased in 2024
    • Must be purchased through a dealership
    • Not already sold to a qualifying buyer since August 16, 2022
    • Weight less than 14,000 pounds
    • Battery capacity of at least 7 kilowatt hours (see the IRS listing of qualifying used models for details)
  4. Income Eligibility - Used EV purchasers must meet Adjusted Gross Income (AGI) eligibility requirements of $75,000 or less for individual filers, $150,000 or less for joint filers or $112,500 for head of household filers. Eligibility is determined by the lower of the AGI in the year the vehicle was placed in service or the year prior.
  5. Additional Purchaser Requirements - To qualify, you must also meet these requirements:
    • Only for indidividual purchasers, not for businesses
    • Must not be the original owner
    • Must not be claimed as a dependent on another person's tax return
    • Must not have claimed another used EV tax credit in the 3 years before the purchase date
  6. Dealer Reporting / Transferable to Dealers - The dealer must provide a report to you at the time of sale and to the IRS with your taxpayer ID for you to be eligible to claim a credit. Starting in January 2024, purchasers will be able to work through a participating dealership to have the value of the credit passed through at the point of sale.

Commercial EV Tax Credits

Businesses purchasing EVs could be eligible for a 30% tax credit, up to $7,500 for vehicles less than 14,000 pounds or up to $40,000 for vehicles over 14,000 pounds. The business tax credit is not be subject to the same battery production and mineral sourcing requirements as the consumer program. Tax exempt entities operating fleet EVs may be eligible for direct payments in lieu of tax credits. Additional IRS rules and guidance on this program are in development.

The IRS' Commercial Clean Vehicle Credit resource provides more details on qualifying for and claiming this credit.

EV Charging Installation Tax Credits

The Inflation Reduction Act restored a tax credit for charging infrastructure installations that previously ended on December 31, 2021. The amount of the credit is 30% of the actual equipment and installation costs, up to $100,000 for commercial property if prevailing wage and registered apprenticeship requirements for installation are met. For homeowners, the credit is capped at up to $1,000. Costs for bi-directional charging equipment may be eligible (e.g. Vehicle-to-home power systems). Starting in January 2023, the credit will be limited to property located in qualifying census tracts in low-income communities under the New Markets Tax Credit or non-urban areas. Homeowners and businesses who need to upgrade their electric service for EV charging may qualify for additional incentives created by the IRA, with more details expected in mid-2023. Rewiring America's IRA calculator offers additional information on these opportunities.

How to claim your incentive

For more information on how to claim the electric car tax credit, visit the U.S. Department of Energy╩╝s Fuel Efficient Vehicle Tax Information Center (see the "Claiming the Credit" section beneath the listing of models and tax credit amounts). The IRS also provides additional information on the forms and procedures for claiming the credit on their website.

The US Treasury Department has also published a list of Frequently Asked Questions related to the Inflation Reduction Act EV incentive changes that may be of interest.