How You Can Cash In On The Electric Vehicle Tax Credit (2024)

The clean vehicle tax credit—often called the electric vehicle or EV tax credit—has recently been turbocharged.

As with all tax credits, you can subtract the amount of your credit directly from the taxes you owe. And in October, the IRS released new guidance allowing you to get the tax credit as cash at the dealership when you purchase an electric or fuel-cell car or truck.

Before these changes, you had to wait until tax time to claim the electric vehicle tax credit. That arrangement came with a major disadvantage. Since the EV federal tax credit is nonrefundable, some taxpayers would receive only a partial credit or no credit at the time of filing, depending on the amount of taxes they owed.

After the changes in the EV tax credit, here’s how it works.

What Is the EV Tax Credit?

The EV tax credit was established as part of the Energy Improvement and Extension Act of 2008 under former President Barack Obama. The Inflation Reduction Act of 2022 significantly modified the tax credit, changing the rules about which vehicles and taxpayers are eligible, and extending it until 2032. A significant change is that previously owned cars now qualify for the credit.

How Does the EV Tax Credit Work?

First, your electric vehicle must meet specific guidelines to qualify for the EV tax credit. You can check the Department of Energy’s website to find out whether or not your vehicle qualifies. Then you’ll have to fulfill other requirements depending on whether the vehicle is pre-owned or new.

Getting the EV Tax Credit for New Cars

For new cars, you can claim up to $7,500 for a qualified plug-in or fuel-cell electric vehicle purchase. You have to buy the car for your personal use (that is, not for resale) and use it primarily in the United States.

Also, your income must be below certain limits. For 2023, you may qualify for the EV tax credit if your modified adjusted gross income (MAGI) is less than the following thresholds:

• $300,000 for married couples or qualifying widowed spouses
• $225,000 for head of households
• $150,000 for all other filers

You can use your income from the year you take possession of the vehicle or the preceding year, whichever is less. As long as your MAGI for one of those two years is under the limit, you can claim the credit.

Getting the EV Tax Credit for Previously Owned Cars

The IRS now allows you to claim the EV tax credit for previously owned electric vehicles for purchases up to $25,000. However, the tax credit works differently for used cars. You can claim a credit worth up to $4,000 or 30% of the purchase price, whichever is lower.

You may qualify for the EV tax credit if you’re not the vehicle’s original owner and you are not buying the car to resell it. However, the seller must also register the vehicle and report the same information to the IRS.

As with the tax credit for new EVs, you must also meet the IRS’s income requirements. You can choose to use this year’s MAGI or last year’s in order to qualify. For 2023, your MAGI may not exceed the following thresholds:

• $150,000 for married couples or qualifying widowed spouses
• $112,500 for head of households
• $75,000 for all other filers

However, you won’t qualify for the previously-owned EV tax credit if you’re listed as a dependent on someone else’s tax return or if you’ve claimed this credit within the past three years.

How To Claim the EV Tax Credit

To benefit from the EV tax credit, you’ll need to fill out IRS Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit when you file your tax return. The form asks for information including the following:

• Year, make and model of vehicle
• Vehicle identification number
• Date vehicle was placed in service
• Purchase cost

Related: Most Affordable Electric Cars Of 2023

How To Get the EV Tax Credit Up Front as a Cash Payment

Starting in January 2024, you can get the EV tax credit of up to $7,500 right away, without waiting to claim it when you file your tax return. The IRS has said you can get the tax credit as cash or as a down payment when you buy your electric vehicle.

The new changes also allow you to get the credit in full, regardless of how much you owe in taxes—even if you owe no taxes at all. Before the IRS changes, taxpayers would have to wait until tax time. Sometimes, the credit would be smaller or reduced to zero, depending on the taxes owed.

If you choose to use the tax credit money at the dealership, you’ll still need to meet the requirements when filing your tax return. If you want to receive the tax credit up front but no longer qualify, you’ll need to repay the credit amount as additional tax on your tax return.