What is the EV tax credit?

You can save thousands, but not all cars and buyers qualify

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The federal electric vehicle (EV) tax credit is often mischaracterized as a coupon on all new EVs sold in the United States. And to be fair — at one point it nearly was, considering how many vehicles qualified.

But, starting in 2023, the Inflation Reduction Act brought a host of sweeping changes to the program, shaking up which vehicles qualified and why. Now, only some EVs qualify, some of the time.

But which ones? Why? What’s changing in 2025? And if you’re on the fence about buying an EV, is now the time?

Read on to find out.

Key insights

  • The EV tax credit can earn you up to $7,500 for a new EV and up to $4,000 for a used one. (It’s technically a credit on your taxes, but dealerships typically offer it upfront for new vehicles.)
  • Vehicle restrictions have been getting tighter each year, so if you were already planning on buying an eligible EV, sooner could be safer than later.
  • The tax credit is nice, but it may not do enough to offset the high purchase costs, high insurance costs and below-average reliability of most EVs.
  • For affordable and efficient transportation, a hybrid might be a better option in 2024.

The EV tax credit explained

Here’s how the EV tax credit works in a nutshell:

  1. First, you purchase a new or used EV that’s on the government’s lists of approved vehicles.
  2. Next, the dealer selling the car receives the tax credit and either lowers the price accordingly or pays you cash in return. If you buy from a private party, you receive the credit as a discount on your taxes when you file next year.
  3. Finally, you file Form 8936 with the IRS the next time you do your taxes — even if the dealer took the tax credit.

In order to qualify for the EV tax credit in 2024, you must also earn below a certain income threshold. Specifically, your modified adjusted gross income (MAGI) must be less than the following on either your 2023 or 2024 taxes.

Now that you have a general idea of how the EV tax credit works, let’s talk about which cars qualify — and why.

» LEARN: Tax credits 2023-2024

Which new EVs qualify for the tax credit in 2024?

Technically speaking, the $7,500 new EV tax credit is really two separate $3,750 tax credits, and some vehicles only qualify for one or the other:

  • You get the mining credit if a certain percentage of the minerals in your car’s battery were sourced from the U.S. or a country we have a free-trade agreement with.
  • You get the battery credit if a certain percentage of your EV’s battery was assembled in North America.

Qualifying vehicles must also be assembled in North America and have MSRPs below $55,000 for cars and $80,000 for trucks, vans, SUVs and crossovers.

The Ford Mustang Mach-E, Chevrolet Blazer EV and base trim Tesla Model 3 no longer qualify as of 2024.

As a result of these and other restrictions, the list of brand-new EV models that qualify for the full $7,500 is just eight entries long. (Some of those models even have trims that don’t qualify at all.)

Below, you can see the complete list of vehicles and trim levels that qualify for at least one of the two $3,750 tax credits in 2024. (You may have to scroll to see the whole thing.)

*Accurate as of March 2024. For the most up-to-date list, visit fueleconomy.gov.

Do leased vehicles qualify for the EV tax credit in 2024?

Leased vehicles technically qualify for the EV tax credit, but lessees aren’t the ones getting the benefits because the manufacturers actually own leased vehicles.

That being said, some automakers and dealerships have used their tax savings to offer better overall lease terms.

» LEARN: How to buy a new car

Which used EVs qualify for the tax credit in 2024?

For used EVs, the qualifications are a little different, and the maximum tax credit is lower at only $4,000.

To qualify, you must be the second owner of the vehicle (the credit only applies to the first transfer), and the car must be at least 2 model years old (e.g., a 2022 or older in 2024).

Additionally, the sale price of the vehicle must be below $25,000. That’s a low bar, and it may instantly disqualify most 2020 or newer luxury EVs, like the Porsche Taycan or BMW i8. (That is, unless you find a miracle of a deal.)

Over 100 used models can qualify for the EV tax credit as of publishing.

There’s a longer list of more minute requirements, so to keep things simple, the government maintains a running list of all pre-owned EVs and PHEVs that qualify — provided you find one for under $25,000. (We’d include the list here, but it’s too long.)

Lastly, it’s worth noting that the used EV credit isn’t $4,000 across the board. The amount you receive is up to 30% of the vehicle’s price, which means all cars listed for more than $13,333 will earn the buyer a $4,000 credit. Those that cost less will only earn the buyer less.

Still, $4,000 off an EV that costs anywhere from $13,333 to $25,000 isn’t too shabby. That can cover quite a lot of charging (or even a home charger install).

But not all deals are worth taking. So, let’s explore whether the EV tax credit will actually save you money in the long run.

» LEARN: How to buy a used car

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Is the EV tax credit worth it in 2024?

Whether the EV tax credit makes buying an electric vehicle worth it depends on what kind of buyer you are: 

  • Were you already determined to purchase an EV?
  • Or are you considering whether the tax credit makes getting an EV more affordable than a hybrid or a gas-powered car?

Let’s break down both scenarios.

If you were already determined to get an EV

Assuming you were already gearing up to buy an EV soon, the EV tax credit may actually be a good reason to act sooner rather than later. While the credit itself isn’t going away anytime soon, the restrictions have been getting tighter each year — and the list of qualifying vehicles may get shorter before it gets longer.

Case in point, new rules went into place on Jan. 1, 2024, that excluded vehicles containing materials from China. This instantly disqualified popular models like the Ford Mustang Mach-E, Chevrolet Blazer EV and the base Tesla Model 3.

If you were going to buy a qualifying EV anyway, the tax credit is just icing on the cake.

While no such sweeping changes are planned for 2025, the IRS is raising the required proportion of battery components assembled/mined in the U.S. by 10% each year, and it’s unclear how that will affect which vehicles qualify in the future.

Granted, it’s possible that Ford, Chevrolet, Hyundai and others will announce tomorrow that all of their new EVs will qualify for the tax credit in 2025. (Rumor has it that many of the automakers are working towards that goal.) But if the vehicle you want already qualifies, it might be worth getting it now so you don’t miss your chance to save $7,500.

If you’re on the fence about buying an EV

We’re big fans of renewable energy, but from a consumer’s perspective, owning an EV is still an expensive prospect in 2024. Sure, you could get back up to $7,500, but EVs are still more expensive to buy, more expensive to insure and less dependable overall than their hybrid- and gas-powered equivalents.

“The electric vehicle tax credit is not a good reason to buy an electric car,” claimed Lauren Fix of CarCoachReports.com. (Fix is also a member of ConsumerAffairs’ advisory panel.) “If you owe over $7,500 in federal taxes, this can cover your taxes owed — but you have to purchase a vehicle that is a large expense.”

The electric vehicle tax credit is not a good reason to buy an electric car. ”
— Lauren Fix, editor in chief of CarCoachReports.com

A used EV may be cheaper to buy, but pre-owned EVs have their own set of challenges, ranging from faster-than-average depreciation to unknown battery longevity. Many are also just as expensive to own and operate as new EVs.

“When figuring out if this purchase makes sense, add in all your costs, including insurance, installing a charging station by a certified electrician, your charging costs, depreciation, payments and cost of ownership,” added Fix.

The sweet spot might be to purchase a used EV that qualifies for the $4,000 tax credit but is still well within its EV warranty period. But even then, if you’re looking for a dependable, low-cost vehicle that’s also highly fuel efficient, a gently used hybrid might be a better bet.

» RELATED: EV battery replacement cost

Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
  1. Car Coach Reports, “EV Tax Credit: What It Is, How It Works, and Who Is Eligible.” Accessed Feb. 26, 2024.
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