Ever since electric vehicles first made a big comeback with the introduction of the Toyota Prius in 1997, the main barrier between most drivers and more efficient travel has been cost. Today, with a growing list of tax incentives and discounts available across the United States, that barrier is getting smaller every year.
The best-known, and among the most generous, programs is the $7,500 EV credit introduced under the Inflation Reduction Act of 2022. Upcoming changes to the EV tax credit in 2024 are about to make things even simpler and electric cars of all kinds, used and new, that much easier to buy. Here’s a look at what the new year will bring to the world of EVs.
How the EV Tax Credit Works
Changes may be coming soon to the IRA EV tax credit, but many of the basics will remain the same. Buyers can receive a tax credit of up to $7,500 when purchasing new electric vehicles that have:
Undergone final assembly in North America
And have at least 50% (up from 40% in 2023) of their battery components sourced from the United States, Mexico, Canada, or countries with a free trade agreement with the U.S.
The IRA also introduced the used clean vehicle tax credit, which is equal to 30% of the sale price up to a maximum of $4,000.
To qualify for credit on new vehicles, buyers must not have a modified adjusted gross income (MAGI) of more than:
$300,000 for married couples filing jointly
$225,000 for heads of households
$150,000 for all other filers
For the used vehicle credit, MAGI must be less than:
$150,000 for married filing jointly or a surviving spouse
$112,500 for heads of households
$75,000 for all other filers
Vehicles placed in service after April 18, 2023, will qualify for a larger baseline amount. These basic rules will carry over into the new year.
Changes to the EV Tax Credit in 2024
Point-of-Sale Tax Credits
In the 2022 and 2023 tax years, EV buyers could only receive the EV tax credit after claiming it on their tax returns for those years. The electric vehicle tax credit of 2024, on the other hand, can be taken as a tax discount or at the point of purchase. In other words, when you visit an EV dealership from January 1, 2024, you can use your tax credit toward a down payment directly disbursed to the dealer by the IRS. This change is expected to make new and used EVs much more immediately affordable for drivers from 2024, but you’ll also have the option to apply for the credit on your taxes.
To qualify, you’ll have to declare that your income for either the year of purchase or the preceding tax year falls below the IRS’ MAGI limits and that you intend to file a return for the tax year in which you purchased the vehicle. If your income exceeds that amount by the time you submit your return, you may have to pay back the full amount to the IRS. Repayment is always the responsibility of filers rather than dealers.
Reduced Impact of Tax Liability
The current EV tax credit is non-refundable, meaning that if the amount of the credit is higher than your tax liability, you’ll only receive enough credit to offset that liability. Put another way, if you qualified for the full $7,500 but only owed the IRS $5,000, the remaining $2,500 wouldn’t apply to an EV tax credit.
That’s changing with the EV federal tax credit in 2024. The U.S. Treasury Department has announced that from 2024, filers can receive the full credit amount as long as they meet the other requirements “regardless of their individual tax liability.” That means a much larger number of people will qualify for the full amount, making EV purchases more affordable in general.
It’s not all good news. Beginning in January, vehicles containing “any battery components that are manufactured or assembled” by a “foreign entity of concern” (FEOC) won’t be eligible for the federal EV tax credit. From 2025, according to the Treasury Department, “an eligible clean vehicle may not contain any critical minerals that were extracted, processed, or recycled” by an FEOC.
FEOC, in the context of the IRA EV tax credit, refers to North Korea, China, Russia, and Iran. If an EV is produced by a company incorporated, headquartered, and operating in any of these countries, or by a company in which an FEOC-affiliated company owns at least 25% of shares, it won’t qualify for the tax credit. Plus, starting in 2025, EVs must have at least 60% of their battery components sourced from North America or U.S. trading partners.
EV Tax Credit 2024: Wrapping It Up
Many of the details surrounding changes to the federal EV tax credit are still to come. Until then, you can follow evee Life to keep up with the latest EV news and insights.
Eveelife is an eco-oriented lifestyle platform that helps consumers make more purposeful choices about how they live and what they consume. We do it by curating content and products that help them make more conscious, carbon-free choices while amplifying their EV ownership experience.