2023 EV Tax Credit: What You Need to Know

With a new electric vehicle (EV), you can reduce your carbon footprint and possibly get a bigger tax refund with an EV tax credit.

The Internal Revenue Service (IRS) has updated the regulations for federal tax credits up to $7,500 on new and used plug-in EVs and hydrogen Fuel Cell Vehicles (FCV). Updated guidance, effective April 18, 2023, helped clarify the rules for cars entering service in 2023.

We’ll help you figure out which vehicles are eligible and how to apply so you can claim your share of the federal EV tax credit that could reduce the overall cost of your new green car.

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What is the EV tax credit?

The electric vehicle (EV) tax credit was included in the 2022 Inflation Reduction Act. This nonrefundable tax credit is offered to taxpayers who purchase a qualifying EV or “clean” vehicle. A tax credit is a dollar-for-dollar reduction in the amount of income tax you owe.

A credit of up to $7,500 applies to qualifying new EV and PHEV vehicles delivered to the taxpayer on or after January 1, 2023. For vehicles delivered on or after April 18, 2023, you may be eligible for a critical minerals credit of $3,750 and a battery components requirement credit of $3,750. A vehicle may be eligible for either credit or both, for a maximum of $7,500.

For vehicles placed in service before the April 18 cutoff, the credit is a $2,500 base amount plus additional credits based on the battery capacity, up to an additional $5,000 for a possible total of $7,500.

How does the EV tax credit work?

You can claim the EV tax credit on your taxes: For example, if you owe $10,000 in taxes and you qualify for the full $7,500 EV credit, your total tax liability will be $2,500. But you can only claim up to the amount of taxes you owe — the government won’t give you a refund in excess of what you owe. If you buy a qualifying car in 2023, you’ll claim it when doing your 2024 taxes.

Starting in 2024, you can choose to transfer the EV tax credit to your qualified dealer when you buy the car, which turns the credit into a discount on the EV. These rules are in effect for vehicles purchased from 2023 to 2032.

Vehicle requirements

The revised rules have helped to clear up confusion about which vehicles qualify and which vehicles are classified as cars or SUVs. Under the new rules, some vehicles that once qualified for credits are no longer eligible, like some Tesla models and the Lucid Air.

The tax credit applies to “clean vehicles,” so certain hydrogen fuel cell vehicles and plug-in hybrids may qualify as well. The vehicle must have had final assembly in North America, and vehicles delivered after the April 18 deadline must also meet battery and sourcing requirements.

Battery requirements

To be eligible for the $3,750 battery component of the tax credit, a certain percentage of the vehicle’s battery must have been manufactured in North America. The percentage thresholds increase with each passing year.

• 2023: 50%
• 2024: 60%
• 2025: 60%
• 2026: 70%
• 2027: 80%
• 2028: 90%
• 2029 through 2032: 100%

Critical minerals requirement

Similarly, to receive the $3,750 critical minerals credit, a certain portion of the minerals in the car’s battery must have been sourced from the United States or a country with a free trade agreement with the U.S.

• 2023: 40%
• 2024: 50%
• 2025: 60%
• 2026: 70%
• 2027 through 2032: 80%

Keep in mind that the credits are applied to vehicles that enter service after Jan. 1, 2023 — meaning when you take delivery of the car. It doesn’t matter when you ordered or made a deposit on the car.

MSRP limits

The limitations are based on the manufacturer’s suggested retail price (MSRP), not the actual price you paid for the vehicle. Additional costs like sales tax, fees and negative equity don’t factor into the MSRP, and dealer incentive pricing won’t affect it either.

• $80,000 and under for vans, sport utility vehicles and pickup trucks
• $55,000 and under for other vehicles, including sedans and passenger cars

New EV requirements

To qualify, a new EV must:

• Not be acquired for resale
• Be manufactured by a qualified manufacturer
• Have a gross vehicle weight rating of less than 14,000 pounds
• Have a battery capacity of 7 kilowatt hours or more
• Be capable of being recharged from an external source of electricity
• Have final assembly in North America

For a taxpayer to claim the credit, the seller must provide a report containing taxpayer and vehicle information to both the consumer and the IRS.

Used EV requirements

You can claim a credit for a used EV or FCV of 30% up to a maximum of $4,000. You’ll have to buy the vehicle from a licensed dealer in 2023.

To qualify, a used EV must:

• Have a sale price of $25,000 or less
• Have a model year at least two years earlier than the calendar year of purchase (for example, a vehicle purchased in 2023 would need a model year of 2021 or older)
• Not have already been transferred after Aug. 16, 2022 to a qualified buyer
• Have a gross vehicle weight rating of less than 14,000 pounds
• Be an eligible FCV or plug-in EV with a battery capacity of least 7 kilowatt hours
• Be for use primarily in the United States

Consumer eligibility requirements

In addition to the vehicle, car buyers must also qualify for the federal EV tax credit. To take full advantage, your modified adjusted gross income (AGI) must be below the following limits:

For both new and used EVs, you have the option to use the modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your modified AGI is below the threshold in either of the two years, you can claim the credit.

The credit is nonrefundable, so you can’t use the credit to get back more than you owe in taxes. You also can’t apply any excess credit to future tax years.

Which vehicles qualify for the 2023 tax credit?

Check with your dealer before you buy to make sure you understand how much of the credit a vehicle may qualify for based on the critical mineral, battery component and final assembly requirements. Depending on when a vehicle is placed in service, it may qualify for a smaller credit amount — or not qualify at all.

New vehicles

Eligibility for the federal EV tax credit depends on several factors, including the vehicle’s MSRP, its final assembly location and your modified adjusted gross income (AGI). Check out this list to determine whether your new electric vehicle qualifies for the tax credit.

Used vehicles

To qualify, an EV or FCV must be at least two years old with a sales price of $25,000 or lower. The car must be purchased from a dealer, and the dealer must provide the required EV information to you and the IRS. (Look at this list of used clean vehicles that qualify for the EV tax credit.)

EV charger tax credit

If you buy an EV, you can also receive a tax credit for installing a charging station at your primary residence. For equipment purchased between 2023 and 2032, you may be able to receive a tax credit of $1,000 or 30% of the cost, whichever is smaller. Qualifications rely on the demographics of the area where the property is located, based on census data.

• Property is not located in an urban area
• Poverty rate in the census tract is at least 20%
• The median family income is 80% of the state median family income level

Use IRS form 8911 to claim the Alternative Fuel Vehicle Refueling Property Credit

How to claim the EV tax credit

To file for your Qualified Plug-In Electric Drive Motor Vehicle Credit, use IRS form 8936. For vehicles delivered in 2023, you claim the tax credit as part of your tax return, so you’ll have to wait until tax time in 2024 to get the benefit.

Beginning in 2024, you’ll be able to transfer the clean vehicle tax credit to a dealer registered with the IRS. The dealer can reduce the cost of the vehicle by the amount of the credit, which lowers the amount you’ll pay for the car.

How to get the EV tax credit on cars bought in 2022

If you bought and received a clean vehicle in 2022 or before, the critical minerals and battery sourcing requirements won’t apply. Qualified new cars and light truck EVs are eligible for a maximum credit of $7,500, based on the following:

• $2,917 for a vehicle with a battery capacity of at least 5 kilowatt hours (kWh)
• $417 for each additional kWh of capacity

The vehicle must also:

• Have an external charging source
• Have a gross vehicle weight rating under 14,000 pounds
• Be made by a vehicle manufacturer that hasn’t sold more than 200,000 EVs in the U.S.

If you took delivery of an EV between Aug. 17, 2022, and Dec. 31, 2022, it also must have gone through final assembly in North America to qualify. Be sure to check the specific country of origin for your vehicle, as vehicles may be assembled in multiple locations.