Amid turmoil about electric vehicles (EVs), it’s fair to wonder about the status of the Clean Vehicle Credit. Former President Joe Biden aimed to recommit the US to combating climate change through various executive orders (EOs) and the Inflation Reduction Act of 2022, which changed the Clean Vehicle Credit rules for vehicles purchased between 2023 and 2032 (you can find the rules for previous years here). President Donald Trump also signed various EOs related to EVs, including one called “Unleashing American Energy,” which eliminated what it referred to as the “EV mandate.” Here’s all the background on those actions.
So, where does that leave EV owners (or prospective buyers)? After all, EVs continue to rise in popularity. Kelley Blue Book says that electric vehicle sales reached a record 1.3 million in 2024, marking a 7.3% increase from the previous year. CNBC reports that EVs accounted for a record 20% of US vehicle sales in 2024.
As of this writing, the Clean Vehicle Credit is still part of the IRS tax code. But, as of 2024, “any credits must be initiated and approved at the time of sale.” As such, you need to obtain a copy of the IRS’s confirmation that your dealer successfully submitted a “time-of-sale” report. Whether you transferred whatever credit you are eligible for at the time of sale or are waiting to claim the credit when you file your taxes, you must report everything on Form 8936 the same tax year in which you took delivery. Keep in mind that you might need to repay a portion of this credit if you claim it at the time of purchase and exceed income requirements.
Below, we cover all the eligibility requirements for the Clean Vehicle Credit and explain how tax software can help you file these details correctly. We’ll update this story if anything changes.
IRS Form 8936 (Credit: IRS/PCMag)
Which Electric Vehicles Qualify for the Clean Vehicle Credit?
Before we get into specifics, know that Clean Vehicle Credit ranges from $2,500 to $7,500, depending on the factors and requirements the Inflation Reduction Act of 2022 specifies. You can check if a vehicle you purchased in 2024 is eligible from the IRS site based on the delivery date. Or, if you are thinking about buying an EV in 2025, we have an up-to-date list of eligible vehicles.
To quality, a new plug-in electric vehicle must first meet a set of basic requirements. It must:
-
Be a product of a qualified manufacturer
-
Have a battery capacity of at least 7 kilowatt hours
-
Have a gross vehicle weight rating of less than 14,000 pounds
-
Undergo final assembly in North America
There are also limitations on a vehicle manufacturer’s suggested retail price (MSRP). The MSRP can’t exceed $80,000 for pickups, SUVs, and vans or $55,000 for all other vehicles.
As of April 2023, the IRS and the Treasury Department implemented an additional set of rules around mineral mining and battery component manufacturing.
To meet the critical mineral requirement part of the tax credit ($3,750), a manufacturer must process or extract a percentage of a vehicle’s battery materials, such as lithium and nickel, either in the US or a country with which the US has a free trade agreement. In 2023, that percentage of battery materials was 40%. It continues to go up by 10% every year, topping out at 80% in 2027.
To qualify for the other half of the credit ($3,750), the majority of a vehicle’s battery components must be from Canada, Mexico, or the US. The percentage was 50% in 2023 and will increase to 100% by 2029.
Get Our Best Stories!
What’s New Now
By clicking Sign Me Up, you confirm you are 16+ and agree to our Terms of Use and Privacy Policy.
Thanks for signing up!
Your subscription has been confirmed. Keep an eye on your inbox!
The problem with the above requirements is that most of the world’s mineral refining and battery component production happens in China and other countries with which the US doesn’t have free trade agreements. Moreover, there are a lot of environmental and political headwinds involved in ramping up those activities in the US.
Who Qualifies for the Clean Vehicle Credit?
Assuming your vehicle was in service on or after April 18, 2023, and meets the above requirements, you might qualify for the full $7,500 credit. To be eligible, you must use your vehicle for personal or business use (as opposed to for resale) and drive it primarily within the US. Additionally, your modified adjusted gross income (AGI) can’t exceed:
-
$300,000 for married couples filing jointly or a surviving spouse
-
$225,000 for heads of households
-
$150,000 for all other filers
As mentioned, you might need to repay some or all of the Clean Vehicle Credit if you apply the credit at the time of purchase but go over the above income limits.
Can You Use Tax Software to Claim the Clean Vehicle Credit?
Every personal tax prep application we reviewed includes tools for claiming the Clean Vehicle Credit, even the totally free Cash App Taxes. Some, like Liberty Tax, simply provide fields for the information that Form 8936 needs. Intuit TurboTax does the best job of ensuring that you understand what’s required for the credit and enter it correctly.
Recommended by Our Editors
Energy efficient vehicle credit section in TurboTax (Credit: TurboTax/PCMag)
Note that the Clean Vehicle Credit is nonrefundable, meaning you can claim only as much as you owe in federal income taxes for the year you claim the credit (which must be the year you put the vehicle into service.). For example, if you owe only $6,000 in taxes, the most you can get as a credit is $6,000, even if your vehicle is eligible for the full $7,500. The credit doesn’t roll over, either. Another caveat: The IRS always has the right to reject a given credit or reduce it.
The Best Tax Software We’ve Tested
Is There a Tax Credit for Fuel Cell Vehicles?
Fuel cell vehicles (FCVs) should qualify as long as they meet the requirements in the earlier section. The IRS considers FCVs as zero-emission vehicles because they utilize oxygen from the air along with compressed hydrogen.
Commercial vehicles like forklifts have long used fuel cells, but Honda, Hyundai, and Toyota all now produce passenger vehicles with this technology. A dearth of hydrogen fueling stations and other logistical problems might prevent FCVs from fully taking hold as personal vehicles. The credit for commercial fuel cell vehicles maxes out at 30% of the cost or $40,000, whichever is less, and will remain in place until 2032.
Can You Get the EV Tax Credit for a Used or Leased Car?
If you purchase a used EV, you could be eligible for a different credit. You could get up to a $4,000 credit or 30% of the sale price, whichever is less. The amount of the credit phases out based on your adjusted gross income (AGI). If your AGI is more than $150,000 for a couple filing jointly, $112.500 for head or household, or $75,000 for all others, then the amount of tax credit decreases. This credit is set to end in 2032.
The Inflation Reduction Act classifies leased EVs as commercial vehicles. This means they are eligible for the full Clean Vehicle Credit even if they don’t meet the battery and sourcing requirements. When you lease an EV from a dealership, the credit goes to the dealership, although the dealership might, in turn, cut you a break so you can get at least a partial benefit. Leased vehicles might also be eligible for a state credit, however, depending on where you live and register the car.
Are State Tax Credits Available for Electric Vehicles?
Yes, hundreds of them. Retailers in most states offer a combination of tax credits, rebates, and reduced registration fees or vehicle taxes. The Department of Energy maintains a list for each state. Check out this list for more current additions as well as new state laws and regulations.
About Kathy Yakal
Contributor
