Understanding the 2024 EV Tax Credit: A Comprehensive Guide

Here’s an unexpected bit of good news for car buyers: In 2023, the average price of an electric vehicle (EV) dropped 17.7%, according to Cox Automotive. Unfortunately, the average price it dropped to was $50,798—not exactly pocket change. Still, lower prices, manufacturer and dealer incentives, comparatively high gas prices, and a $7,500 federal tax credit for new EVs could add up to greater affordability.

In 2024, the federal EV tax credit provides up to $7,500 that can be applied toward your purchase price, lowering the cost of your new EV upfront. Vehicle restrictions and income requirements apply, and choosing the right dealer is critical. However, you can still get a significant tax credit when you purchase an eligible new EV. Read on for details.

How Does the EV Tax Credit Work?

The clean vehicle tax credit provides up to $7,500 in non-refundable tax credits when you purchase a new electric vehicle, plug-in hybrid, or fuel cell electric vehicle. Tax credits for EVs have been around for years, but 2024 brings new requirements and a new process that could make it easier to afford a new fuel-efficient car—but a bit more difficult to qualify.

Changes to the EV Tax Credit for 2024

In 2024, the EV tax credit has new vehicle requirements and income limits for taxpayers. However, the biggest change might be in the way you claim the credit.

Starting in 2024, you’ll need to obtain an approved time-of-sale report when you purchase your vehicle. You can use the report to claim the credit on your tax return—as in years past—and can transfer the credit to your dealer to have it applied to your vehicle’s final purchase price. With this new system, instead of waiting until tax time to receive your credit, the credit acts as an immediate discount that reduces your upfront cost and/or the amount you need to finance.

New Vehicle Requirements

New sourcing requirements that went into effect in mid-2023 are still in play (and may still be confusing) in 2024. Qualifying vehicles must undergo final assembly in North America and meet sourcing requirements for battery components and critical minerals. Vehicles qualify for a $3,750 credit for meeting battery part requirements and a $3,750 credit for meeting critical minerals requirements, for a total of $7,500.

Current requirements mean that fewer manufacturers’ vehicles qualify for the 2024 credit. As of February 2024, only eight manufacturers offer eligible vehicles:

• Chevy
• Chrysler
• Ford
• Jeep
• Lincoln
• Rivian
• Tesla
• Volkswagen

Additionally, passenger cars must have a manufacturer’s suggested retail price (MSRP) of $55,000 or less; $80,000 or less for vans, SUVs, and light trucks.

Income Limits

Finally, to qualify for the 2024 credit, your adjusted gross income (AGI) must be below IRS limits: $150,000 for single filers, $225,000 for heads of household, and $300,000 for married couples filing jointly.

How to Qualify for the 2024 EV Tax Credit

Follow this quick eligibility checklist to determine whether you qualify for the 2024 EV tax credit.

• Your vehicle will be for personal use in the U.S. To qualify, the vehicle must be for personal use and not resale, and it must be used primarily in the U.S.
• Your income doesn’t exceed IRS limits. You can use your AGI from this year or last. For simplicity’s sake, start by checking your AGI on last year’s tax return: It’s line 11 on Form 1040. If your prior year’s AGI qualifies you, you’re good to go. If not, try to estimate your current-year AGI. However, if your AGI turns out to be over the limit when you file your taxes, you’ll have to repay the IRS for any credit you received.
• Choose a qualifying vehicle. Because sorting through eligibility requirements for each vehicle on your own can be complicated, start by checking out the full list of qualifying vehicles on FuelEconomy.gov. Also, consult with your dealer about eligibility requirements.
• Find a registered dealer. To claim the credit in 2024, you need to work with a dealer that’s registered with IRS Energy Credits Online. If you’d like to apply your credit toward the price of the vehicle, confirm that your dealer is able to handle that transaction for you.

If you want to purchase an EV from a manufacturer that’s not on the list, you may want to consider buying a qualifying used vehicle. The used clean energy vehicle credit allows you to choose from a wider range of vehicles and manufacturers to receive a credit of up to $4,000.

How to Claim the Federal EV Tax Credit

If you meet the eligibility requirements above and are ready to make a purchase, your dealer will use the IRS Energy Credits Online website to apply for an approved time-of-sale report you can use when you file your taxes. At this time, you can decide whether you’d like the dealer to transfer your credit and have them apply it to your final cost.

Whether you transfer your credit and use it immediately or save it for tax time, you’ll need to complete IRS Form 8936 and submit it with your tax return to officially claim the credit.

Frequently Asked Questions

Do Electric and Hybrid Cars Really Save You Money?

Electric and hybrid cars can save you money in the long run through lower fuel costs, reduced maintenance expenses, and potential tax credits. However, the initial purchase price can be higher than traditional vehicles, so it’s important to consider your long-term savings.

Do Used EVs Qualify for a Tax Credit?

Yes, used EVs can qualify for a tax credit. The used clean energy vehicle credit allows you to receive a credit of up to $4,000 for purchasing a qualifying used EV.

What Is the Income Limit for the EV Tax Credit?

The income limit for the 2024 EV tax credit is $150,000 for single filers, $225,000 for heads of household, and $300,000 for married couples filing jointly.

The Bottom Line

Though meeting EV tax credit requirements is a little complicated in 2024, a $7,500 price reduction can go a long way toward bringing a clean energy vehicle within reach. Better still, being able to apply your tax credit at the point of sale makes the 2024 credit more useful when you’re working with a limited budget (and who isn’t?).

Even with tax credits, financing a new EV, plug-in hybrid, or fuel-cell EV requires planning and good credit. If you’re considering a new vehicle purchase, now may be a good time to check your credit score and credit report for free with Experian. You’ll get a clearer picture of your financing options so you can explore the best loan opportunities based on your situation.

At O1ne Mortgage, we are here to help you navigate the complexities of financing your new EV. Call us at 213-732-3074 for any mortgage service needs. Our team of experts is ready to assist you in finding the best loan options to make your dream of owning an electric vehicle a reality.