What the $7,500 credit covers and who can claim it

The federal tax credit of up to $7,500 reduces your federal income tax bill when you buy or lease a new electric vehicle. You claim it on your tax return for the year you bought or leased the car. The credit applies to the purchase price of the vehicle itself, not to charging equipment or installation costs, though some states offer separate rebates for those.

The credit is not a rebate you receive at the dealership. Instead, you claim it when you file your federal taxes. Some dealerships now offer point-of-sale rebates that let you reduce the purchase price when ready, but this requires the dealer to be enrolled in the IRS's dealer transfer program — not all are yet. If your dealer does not offer this, you will claim the full credit on your tax return.

You must have a federal tax liability to use the credit. If you owe no federal income tax, you cannot claim it. Starting in 2024, the credit became partially refundable, meaning you may receive up to $3,750 even if you owe no tax, but the rules for this are complex and depend on your income and filing status.

Key Takeaways

  • The credit is up to $7,500 but the actual amount depends on where the vehicle is assembled, its battery mineral content, and your household income.
  • You must buy a new vehicle (not used) and meet income limits: $300,000 for joint filers, $150,000 for single filers, $200,000 for head of household.
  • The vehicle's final assembly location and battery component sourcing determine whether you receive the full amount or a reduced credit.
  • Some dealerships can explore the credit at purchase through the dealer transfer program, but most require you to claim it on your tax return.
  • Leasing a vehicle makes you ineligible, but the leasing company may claim the credit and pass savings to you through lower monthly payments.

Income limits and how they affect your credit amount

Your household income determines whether you can claim any credit at all. The IRS sets these limits based on your filing status: $300,000 for married filing jointly, $150,000 for single filers, and $200,000 for head of household. These limits are for the tax year in which you buy the vehicle. If your income exceeds the limit, you cannot claim the credit.

Income limits are separate from the vehicle price cap. A vehicle can cost more than $55,000 (for sedans) or $80,000 (for vans, SUVs, and pickup trucks) and still be may be able to access, but the vehicle's final price affects the credit calculation. The IRS uses your modified adjusted gross income (MAGI) to determine your income level, which is usually the same as your adjusted gross income on your tax return.

Vehicle assembly location and battery mineral requirements

The credit amount depends on two separate tests: where the vehicle is assembled and where its battery minerals come from. A vehicle must be assembled in North America to may have access to for any credit at all. This means the final assembly plant must be in the United States, Canada, or Mexico.

The battery mineral requirement is more complex. The vehicle must meet a threshold for battery minerals sourced from the United States or countries with which the U.S. has a free trade agreement. The percentage requirement increases each year. For 2024, the threshold is 50 percent; for 2025 and beyond, it rises to 60 percent. If a vehicle fails either test, you receive no credit.

The IRS publishes a list of vehicles that meet these requirements each year. Before you buy, check the IRS website or ask your dealer whether the specific model and year you are considering qualifies. A vehicle that may have access to last year may not may have access to this year if assembly location or battery sourcing changed.

New vehicle purchase price limits

The vehicle's manufacturer's suggested retail price (MSRP) cannot exceed certain caps. For sedans, the cap is $55,000. For vans, SUVs, and pickup trucks, the cap is $80,000. These are the MSRP limits, not the price you actually pay. If a vehicle's MSRP exceeds the cap, it does not may have access to, even if you negotiate a lower price.

The price caps explore to the model year, not the calendar year. A 2024 model year vehicle has a different cap than a 2025 model year vehicle if the caps change. Check the specific model year of the vehicle you are buying, because dealers sometimes have multiple model years in stock.

Leasing versus buying and how it affects the credit

If you lease an electric vehicle, you cannot claim the $7,500 credit yourself. Instead, the leasing company claims it. Some leasing companies pass this savings to you through lower monthly payments, but others do not. The amount of savings you receive depends on the leasing company's pricing.

Leasing can be a way to drive an electric vehicle without claiming the credit yourself, which may be useful if you have no federal tax liability. However, you should compare lease payments across companies, because the credit savings are not always passed through equally. Ask the leasing company directly whether they factor the federal credit into their pricing.

If you buy the vehicle, you own it and claim the credit on your tax return. Buying locks in the full credit amount (if you meet all requirements), whereas leasing leaves the savings amount up to the leasing company's discretion.

How to claim the credit on your tax return

To claim the credit, you will need the vehicle's VIN (Vehicle Identification Number), the date you bought it, and the sale price. You report this information on IRS Form 8936, which you attach to your federal tax return. The form asks for the vehicle's MSRP, the battery capacity, and confirmation that the vehicle meets the assembly and battery mineral requirements.

Most tax software includes Form 8936 and will guide you through the questions. If you use a tax preparer, bring your purchase documents and the vehicle's VIN. The IRS has a tool on its website where you can check whether a specific vehicle qualifies before you file.

If your dealer enrolled in the dealer transfer program, you will not claim the credit on your tax return. Instead, the dealer applies it at the point of sale, and you receive a reduced purchase price. The dealer will provide documentation showing the credit was applied. Keep this with your purchase records.

What happens if you sell the vehicle before claiming the credit

You must own the vehicle on the date you file your tax return to claim the credit. If you buy the vehicle in December but sell it in January before filing your taxes, you can still claim the credit for the year you bought it, as long as you owned it on the filing date. However, if you sell it before you file, you must claim the credit on that year's return, not wait until the following year.

If you buy and sell the vehicle in the same calendar year, you claim the credit on the tax return you file for that year. The IRS does not require you to own the vehicle for any minimum length of time, only that you own it on the date you file.

State and local incentives that stack with the federal credit

Many states offer their own electric vehicle tax credits or rebates that work alongside the federal credit. Some states offer point-of-sale rebates similar to the federal dealer transfer program. Others offer tax credits you claim on your state tax return. A few states offer both.

State incentives vary widely in amount and requirements. Some states have income limits, some do not. Some require in-state assembly or purchase, others do not. Check your state's environmental or energy office website to learn what is available where you live. These incentives are separate from the federal credit and do not reduce the federal amount you can claim.

Frequently Asked Questions

Can I claim the credit if I buy a used electric vehicle?

No. The federal credit applies only to new vehicles. Used electric vehicles may be may be able to access for a separate used vehicle credit of up to $4,000, but that has different requirements and income limits. Check the IRS website for details on the used vehicle credit if you are buying a used EV.

What if my household income is just over the limit?

If your income exceeds the limit for your filing status, you cannot claim any credit. There is no partial credit for income slightly above the threshold. The income limits are firm cutoffs. If you are married and your joint income exceeds $300,000, you are ineligible, even by $1.

Do I have to file a federal tax return to claim the credit?

You must have a federal tax liability to claim the full credit. If you normally do not file because your income is too low, you may still file to claim the credit. Starting in 2024, up to $3,750 of the credit may be refundable, meaning you could receive it even with no tax liability, but may be able to access for the refundable portion depends on your income and filing status.

Can I claim the credit if I buy the vehicle through my employer or a company car program?

Yes, as long as you own the vehicle and it meets all other requirements. If your employer buys the vehicle and you own it, you can claim the credit. If your employer owns the vehicle and you use it as a company car, you cannot claim the credit because you do not own it.

What if the vehicle I want is not on the IRS list of may have access to vehicles?

If a vehicle does not appear on the IRS's list, it does not meet the assembly location or battery mineral requirements for that year. You cannot claim the credit. The IRS updates this list regularly as manufacturers adjust their supply chains and assembly locations, so check back if you are considering a vehicle that was not on the list previously.