June 22, 2024

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Electric Vehicle Tax Credits: What You Need to Know

Electric Vehicle Tax Credits: What You Need to Know

8. FAQs

How do I claim the EV tax credit?
Your process for claiming the EV tax credit depends on when you purchased the vehicle. If you purchased an eligible EV in 2022, the tax credit can be claimed on IRS Form 8936 when you do your taxes in 2023. Your tax person should know how to fill it out and if you’re using tax software, it should guide you through the process. Those purchasing an eligible EV in 2023 will claim the credit when preparing their taxes in 2024. Starting in 2024, you can elect to transfer the EV tax credit to your qualified dealer at the point of sale and effectively turn the credit into a discount on the car, eliminating the previous lag time between the purchase and tax season.

How does the EV charger tax credit work?
If you are installing an EV charger at your home, the federal credit is generally 30% of the charger’s cost or $1,000, whichever is smaller. For those wanting to install an EV charger at a business or investment property, the credit is generally 30% of the charger’s cost or $30,000, whichever is smaller. You can claim the EV charger tax credit the following year on your income taxes using IRS Form 8911. Some states may have additional incentives for installing an EV charger, so it’s worth looking into this list maintained by the DOE. Your local utility company might also have incentives for installing an EV charger.

How much can you write off for an electric car?
Technically, a write-off is a tax deduction, whereas the federal EV tax credit of up to $7,500 is just that — a tax credit. The difference is that a $7,500 write-off reduces your taxable income by that amount before the tax is calculated, whereas a $7,500 credit means you pay $7,500 less in tax than you would have otherwise. In case that didn’t clear things up, just remember that for a given dollar amount, a tax credit means a lot more money in your pocket than a write-off. The maximum federal tax credit of $7,500 on an eligible electric vehicle is effectively a $7,500 handout to you, which is far more than what you’d gain if you simply subtracted $7,500 from your taxable income. It’s also worth looking into this list of state EV incentives maintained by the DOE so that you can maximize the benefits of buying an EV.

How does the federal tax credit for EVs work?
In order to qualify for the full $7,500 federal EV tax credit, the EV you purchase has to be brand new and assembled in North America. Beyond that, increasingly stringent geographical requirements are being phased in regarding the composition and production of the car’s battery pack. Read our full article for the latest details. Until 2024, the way you claim the federal tax credit for EVs is by using IRS Form 8936, which you submit as part of your annual taxes to the federal government. From 2024 onward, you’ll also have the option of transferring your federal EV tax credit to a qualified selling dealer and receiving the amount of the credit as a discount on the car, as opposed to having to wait for tax season.

Was there any fine print for the previous EV tax incentives?
Yes. One rule limited the federal tax credit to the original buyer of a qualified EV or plug-in hybrid. There were a few other conditions:

  • If you were leasing a vehicle, the credit stayed with the manufacturer that offered the lease since the manufacturer was the actual owner of the car. In most cases, the tax credit was factored into the cost of the lease, so the customer would benefit to some extent.
  • The credit wasn’t applicable to an electric vehicle being purchased for the purpose of reselling it. That’s a gray area, though, and would be tough for authorities to prove.
  • The vehicle had to be primarily used in the United States.
  • Plug-in and battery electric vehicles had to be built by qualified manufacturers to be eligible for the full $7,500 credit.
  • Plug-in hybrids and battery electric vehicles also had to have battery packs that were rated for at least 4 kWh of energy storage and were capable of being recharged from an external source.
  • Manufacturers were not required to certify to the agency that vehicles met the requirements in order to qualify for the various credits. For vehicles not listed on the Department of Energy site or on the IRS list of qualified vehicles, a buyer could generally rely on the manufacturer’s representation that the vehicle was eligible. That statement could either be in writing or on the company’s website. The same thing went for electric motorcycles, plug-in and EV conversions, three-wheel EVs and low-speed EVs.

Are there tax credits from states or other sources?
Yes. While the federal tax credits for plug-in and natural gas vehicles get the most mention, there also are dozens of state and regional incentives on plug-in vehicles and those that use alternative fuels. Many states have a dozen or more programs. Many, however, apply only to businesses. Some credits come in the form of exemptions from fees and inspections. Others are non-monetary incentives such as carpool lane access and free parking.

Retail buyers in a number of states can get some cost relief in the form of tax credits, rebates, or reduced vehicle taxes or registration fees for buying a qualified alternative-fuel or electric-drive vehicle.

In California, for example, people who buy or lease a new electric car can get a $750 cash rebate. That’s in addition to the federal tax credit, and the tandem can reduce the effective out-of-pocket cost of the car by up to $8,000. Plug-in hybrids are a little different. Because they have smaller batteries and burn gasoline part of the time, the reward is offered on a sliding scale depending on battery size, up to $750 under California’s Clean Fuel Reward program.

The U.S. Department of Energy also has an interactive chart of state incentives. It’s a good idea to be sure about available state and local incentives before you shop. Just because a state has a program doesn’t mean it will continue indefinitely.

How about fuel cell cars?
Hydrogen fuel cell electric vehicles do qualify for incentives in some states and are explicitly mentioned in the Inflation Reduction Act as qualifying vehicles. Take a look at the U.S. Department of Energy website to see the latest hydrogen laws and incentives.

How did the previous electric vehicle tax credit work?
The previous federal tax-credit incentive was worth up to $7,500 to someone whose tax bill the following year was $7,500 or more. Let’s say you bought a Hyundai Ioniq 5 EV or another eligible vehicle and you owed $6,000 in income tax for that year. That’s all you’d get; the IRS would ignore the remaining $1,500. If you bought an EV in 2022, you will need to complete and file IRS Form 8936 with your federal tax return to claim the credit. If you are leasing, the tax credit will go to the finance company, not you. The carmaker will likely factor the credit into the cost of the lease to lower your monthly payment, but this isn’t mandatory.

Is there still a federal tax credit for electric cars in 2022?
Yes and no, depending on when you purchased. Those who bought an eligible electric car before the adoption of the Inflation Reduction Act on August 16, 2022 should qualify for the previous federal tax credit of up to $7,500. The exceptions are Tesla, Toyota and General Motors, whose tax credits have been phased out, but will return in 2023. The tax credit is also available on fuel cell electric vehicles and plug-in hybrid electric vehicles, but the amount can vary based on battery size. There are far fewer cars that are eligible for EV tax credits in 2022 after the Inflation Reduction Act, but they do exist and you can see the list in this article.

Does California have a tax credit for electric cars?
California offers rebates, as opposed to tax credits, for eligible vehicles. The rebates are for up to $750 for electric vehicles and plug-in electric vehicles, based on the size of the battery. Your local utility company might also offer an incentive on electric vehicles, so explore all your options.

Is there a tax credit for buying a Tesla in 2022?
No. Tesla has sold over 200,000 eligible electric vehicles, and all of its federal tax credits have been phased out. There are still state incentives available for buying a Tesla, so check with your state government’s transportation department. In 2023, the EV sales cap no longer applies and Tesla customers will be eligible for the new tax credit. That said, the vehicle must fall under the pricing rules and income requirements discussed in this article.