Electric vehicles are easier to find and more affordable to buy than ever these days. With more and more automakers releasing all-electric and plug-in hybrid vehicles, there are plenty of options when it comes to choosing an EV. Plus, the $7,500 tax credit introduced under the Inflation Reduction Act of 2022 makes buying an EV a much more realistic and attractive option for many drivers.
This January, that $7,500 deal could be about to get a lot sweeter: Starting in 2024, you won’t have to wait until tax season to claim your credit on qualifying EVs. Instead, you’ll have the option to use the EV tax credit at the point of purchase, putting you that much closer to a down payment on the latest EVs. Plus, buyers can qualify for the credit even if they owe the IRS.
Below, we’ll find out more about how this changes the EV buying process and what you can do to take advantage of it.
Come January 1, many of the rules surrounding the IRA EV tax credit will remain the same. The vehicle you’re thinking of buying must be built in the United States (and primarily used there), and it can’t come with a manufacturer’s suggested retail price of more than $55,000 for cars or $80,000 for electric vans, SUVs, or pickups. You can also receive a used clean vehicle credit of either 30% of the sales price or $4,000, whichever is less, meaning the maximum you can save on a used EV is $4,000.
There are also income requirements to meet. For new EV purchases, the IRS rules stipulate that your modified adjusted gross income (MAGI) can’t be more than:
If you’re looking at the IRS used EV tax credit, the maximum MAGIs are:
You can use your MAGI from either the year you purchased your new EV or from the previous year, whichever is less. As long as either is below the maximum, you can qualify for the tax credit.
The biggest change to the EV tax credit is when you can take advantage of it. In previous years, purchasers had to wait until they filed their tax returns to claim a maximum of $7,500 on EV purchases. Now, you’ll be able to claim the credit at the point of sale, with the dealer passing on the vehicle at a lower price to you and the IRS reimbursing them.
Basically, the change means you can exchange your credit, if eligible, for cash or part of a down payment at the dealership. If you still want to wait until tax season, you can. If you want to exchange, you’ll need to declare that you believe your income will fall within the limits set by the IRS in the following tax year and that you intend to file a tax return for that year.
In the event your income exceeds the amount needed to qualify, you’ll have to pay back the credit to the IRS in the form of an additional tax listed on your return. Repayment is the responsibility of applicants, not dealers, but if you get the full credit and your liability is less than that amount, you won’t have to repay it.
If it seems like holding out for the new year makes sense, it might be better for your wallet to buy now. One further major change concerns batteries. In order to qualify for the full $7,500 at the time of purchase, half of the battery components in any EV you’re thinking of buying must come from the United States, Mexico, or Canada if it was manufactured in 2023, or 60% if manufactured in 2024 or 2025.
That seriously limits the options, as only a few EVs will qualify beginning in 2024. Since so many EVs — including those built within North America — won’t be eligible for the full credit amount, it might be better to go ahead and buy now. Even if you can’t or don’t want to purchase your next EV before January 1, you could still qualify for a $3,750 rebate if the vehicle you buy is built with at least 50% of its components from North America or countries the United States has a free trade agreement with.
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Published December 18, 2023 1:51PM
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