As part of the Inflation Reduction Act (IRA) of 2022 and beginning in tax year 2023, drivers who purchase or lease a qualified plug-in EV (electric vehicle) or fuel cell electric vehicle (FCV) may qualify for a tax credit of up to $7,500
The EV tax credit works as part of a larger effort to encourage Americans to transition to cleaner energy options and reduce carbon emissions by 40 percent by 2030.
Depending on whether you’ve purchased a new or used electric vehicle, the tax credit you receive can vary. Once a taxpayer qualifies for the credit, it directly lowers their federal tax liability by the corresponding credit amount. Beginning in 2024, taxpayers can also choose to take the EV tax credit as a rebate when they purchase their vehicle.
New Electric Vehicle Tax Credit Amount:
In new electric vehicles, your available tax credit depends on your EV’s battery components. Both the raw materials used inside the battery and the way it’s manufactured determine the credit total, up to $7,500.
Used Electric Vehicle Tax Credit Amount:
Drivers purchasing used or pre-owned qualifying vehicles can receive an EV tax credit of 30 percent of the sales price, up to $4,000.
The EV tax credit is set to remain available under the IRA through 2032. In order to receive the EV tax credit on a new or pre-owned vehicle, your vehicle must meet the following qualifications:
Additional Tax Credit Eligibility for New EVs:
New vehicles also must meet either or both of the mineral and battery component requirements to qualify.
Additional Tax Credit Eligibility for Used EVs:
Previously owned EVs, hybrids, and plug-in hybrids are only eligible for a tax credit once in the vehicle’s lifetime.
Lease Credits on EVs:
Certain EVs, like the Subaru Solterra, are eligible for a lease credit of $7,500 through Subaru Motors Finance
In addition to requirements related to an EV’s characteristics, its price also cannot exceed a certain threshold depending on the type of vehicle. Price caps may change periodically based on inflation. For current thresholds, the Internal Revenue Service (IRS) and Department of Energy maintain the most up-to-date information.
Price Caps for New EVs:
Price caps vary depending on the type of vehicle you own. To qualify for the EV tax credit, electric SUVs, vans, and trucks cannot exceed a manufacturer suggested retail price (MSRP) of $80,000. All other electric vehicles cannot exceed a $55,000 MSRP.
Price Caps for Used EVs:
In order to qualify for an EV tax credit, a pre-owned electric vehicle must be $25,000 or less. It must also be sold by a dealer registered with the IRS.
Buyers themselves also must qualify to receive the EV tax credit. Eligibility criteria is based on modified adjusted gross income (AGI), which allows for certain deductions, such as for retirement. Income limits differ depending on filing status (married filing jointly, head of household, or single) and are adjusted periodically.
Income Limits for New EV Buyers:
In order to qualify for the EV tax credit, your AGI cannot exceed $300,000 if you are married and filing jointly. Heads of household have a qualifying AGI threshold of $225,000, while AGI for single and other filers cannot exceed $150,000. Consult the IRS for current qualifying income limits for the EV tax credit.
Income Limits for Used EV Buyers:
Income limits are lower for those purchasing previously owned EVs. Eligibility thresholds range from up to $75,000 for single filers, up to $112,500 for those filing as head of household, and to up to $150,000 for those filing jointly. Consult the IRS for current qualifying income limits for used EVs.
If your EV meets all other necessary qualifications, the electric vehicle tax credit is calculated based on the previously mentioned critical mineral and battery component requirements. This requires that a certain percentage of the critical minerals that comprise the battery are mined or processed in the U.S. It also requires that a certain percentage of EV battery components are manufactured or assembled in North America.
New Car EV Tax Credit Calculation:
New cars that meet both critical mineral and battery component requirements are eligible for the full $7,500 tax credit. If an EV only meets one of the requirements, it will only be eligible for a $3,750 tax credit.
Used Car EV Tax Credit Calculation:
Previously-owned EVs, hybrids, and plug-in hybrids are eligible for a total tax credit of 30 percent of the sale price or up to $4,000—whichever is less.
Beginning in January 2024, it became much easier and faster to claim the EV tax credit. Until December 2023, buyers had to wait until filing income taxes the following year to claim their credit, submitting proper documentation along with their tax forms and applying the credit to their taxes owed.
Now buyers have the option to claim the credit as a rebate at the time of purchase and apply it to the cost of their new EV as a discount from the dealer. The dealer then completes documentation and submits it to the IRS, with the IRS reimbursing the dealer the total cost of the tax credit. This frees the buyer from having to complete paperwork themselves and from having to wait months or longer to access their tax credit.
Since the tax credit is non-refundable (i.e., taxpayers who owe less than the credit they qualify for in income tax cannot receive the difference as a tax refund), claiming the EV tax credit as a rebate is one way to ensure that buyers receive the full amount to which they are entitled.
New buyers also have the option to apply the credit to their income tax owed the following year. If this is the preferred option, they can still opt to fill out the necessary paperwork (Form 8936) and file it with their taxes.
If you purchased a pre-owned EV, you will need to fill out Form 8936 from the IRS to claim your tax credit. This form will need to be filed with your tax return in the year you purchased the vehicle. Your submission must also be accompanied by the vehicle identification number (VIN)
The Federal EV tax credit may not be the only incentive available to you. You may be able to take advantage of additional tax credits, discounts, as well as state and local financial incentives depending on your location and other eligibility criteria. Your employer may also offer an incentive or credit. With state tax laws and other requirements changing all the time, ask your local Subaru retailer to help you explore qualified options or check out the latest resources from the U.S. Department of Energy to see your state’s available incentives.
Yes. You can claim a tax credit of 30 percent of the purchase price up to $4,000 on a qualifying used EV, hybrid, or plug-in hybrid priced $25,000 or less
No. The EV tax credit is non-refundable, meaning it cannot result in a tax refund, even if the credit exceeds your total tax liability.
Yes. The income limits vary depending on your IRS filing status and depending on whether you are claiming a credit on a new or previously owned vehicle. As the income limits may change from year to year, it is best to consult the latest information from the IRS to determine if you qualify based on your income.
If you are leasing an EV, you cannot claim the federal EV tax credit on your vehicle the same way you would if you were purchasing it outright; however, the vehicle still may qualify for the credit. In that case, the tax credit goes to the institution leasing you the vehicle, which could then pass those savings on to you in the form of a rebate or reduced monthly payments.
Leased EVs are classified as commercial vehicles, which are not subject to the same stringent battery requirements as non-commercial vehicles to qualify for the credit. This allows a wider range of EVs to be eligible for the tax credit when leased and may broaden your available options.
Yes. The price caps may change over time and with inflation, but as of January 2024, to qualify for the tax credit new EVs are capped at $55,000 MSRP for cars and $80,000 MSRP for trucks, vans, and SUVS. Previously owned EVs are capped at $25,000. Current price caps on EVs are available from the IRS.
Whether you’re the proud owner of an electric vehicle today, or plan to buy one in the future, Subaru is here for you. Learn more about electric vehicles, including our Solterra.
Information accurate as of May 2024. Verify tax credit rules prior to purchase and consult your tax professional for additional information.
