Updated IRA EV Tax Credits Explained

The EV Tax Credit Changed Again: Here’s What to Know

The Inflation Reduction Act (IRA) established a multitude of federal income tax credits aimed at lowering the cost of clean energy equipment and energy efficiency upgrades for households. This includes a tax credit of up to $7,500 for the purchase of new electric vehicles (EVs) and a tax credit of $4,000 for used EVs.

As of January 1, 2024, several rule changes took effect that impact how the IRA tax credit can be claimed and which EV models qualify. Note that EV purchases made in 2023 are not impacted by the rule changes. Looking to go electric this year? Here’s what you need to know if you’re planning to buy a new or used EV in 2024.

EV Tax Credits Can Be Applied as a Point-of-Sale Discount

Previously, IRA tax credits for new or used EVs could only be claimed when a buyer files their tax returns. With the new rules, a buyer can transfer the tax credit to a car dealership to receive a point-of-sale discount on an EV purchase that’s equal to the IRA tax credit amount.

Pocketing the IRA tax credit as an upfront discount poses several benefits to buyers. For one, the reduced sale price can lower the financing costs for buyers taking out auto loans to purchase a new or used EV.

Second, qualifying borrowers will receive the full tax credit amount for the purchased EV model, regardless of their tax liability for that year. Prior to the rule change, buyers would need a federal tax liability of at least $3,750 – or more depending on the EV model – to receive the full benefit of the IRA tax credit.

Car dealers must be registered on a new IRS platform, Energy Credits Online , for a buyer to receive the point-of-sale EV tax credit. The tax credit can still be claimed when filing tax returns for eligible EVs and buyers that meet IRS income requirements (more on that below).

Fewer New EV Models Are IRA-Eligible in 2024

While the IRA EV tax credit is now easier to claim, there are currently fewer eligible EV models for buyers to choose from. New EVs must meet updated battery-sourcing and manufacturing requirements to be eligible for an IRA tax credit in 2024.

To clarify the changes, it’s important to note that the $7,500 maximum IRA tax credit represents two separate tax credits, each worth $3,750. One credit covers the sourcing of critical minerals used in the EV battery, while the second credit requires that an increasing share of battery components be manufactured and assembled in North America^[1].

New EV models may qualify for both, one, or neither. The list of qualifying EV models dropped from 43 at the end of 2023 to 19 at the start of 2024^[2].

But as EV manufacturers adjust their battery supply chain and assembly locations, more EV models could qualify later in 2024.

The required percentage of critical minerals sourced from the U.S. or trade partners will increase annually moving forward^[1].This means that the list of qualifying new EV models is subject to change every year.

Visit fueleconomy.gov for the most up-to-date list of eligible new EVs and our IRA Vehicle Guide for a list of EV models that qualify for both the IRA tax credit and Drive Clean Rebate.

Many Used EV Models Qualify for IRA Tax Credits

EV sales have increased year-over-year for over a decade, resulting in a growing inventory of used EV models. The IRA rule changes now allow buyers to claim the $4,000 used EV tax credit as a point-of-sale discount, helping make EV ownership more accessible.

The used EV tax credit maxes out at 30% of the vehicle sale price. To qualify, used EVs must have a sale price of $25,000 or less and a model year that’s at least two years old. Around 30% of used EVs on the market today meet these eligibility requirements^[3].

A used EV model can only qualify for the IRA tax credit once, and buyers must meet income requirements set by the IRS .

Learn More: Used Electric Vehicle Buyer’s Guide

Income Limits Remain Unchanged for 2024

The IRS income requirements for both the used and new EV tax will carry over from 2023. It’s important to note that buyers can use their modified adjusted gross income (MAGI) in either 2023 or 2024 to qualify for an IRA tax credit on a 2024 EV purchase.

For most taxpayers, calculating MAGI involves taking their adjusted gross income (AGI) from their tax returns (line 11 on IRS Form 1040) and adding back any deduction for student loan interest^[4]. Here are the 2023-2024 MAGI requirements to qualify for a used or new EV tax credit^[5].

New EVs

• $300,000 for married couples filing jointly
• $225,000 for heads of households
• $150,000 for all other filers

Used EVs

• $150,000 for married couples filing jointly 
• $112,500 for heads of households
• $75,000 for all other filers

Leased EVs Can Qualify for the Commercial EV Tax Credit

The logistical landscape for IRA tax credits looks quite different for drivers that lease an EV.

When leasing an EV, the IRA tax credit goes to the dealer or company leasing out the vehicle, rather than the driver. The IRA classifies leased EVs as commercial vehicles, meaning that EV models don’t have to meet the battery sourcing and manufacturing requirements outlined above to qualify for tax credits.

The commercial tax credit amounts to 15% of the cost for plug-in hybrid EVs and 30% for battery-electric or fuel cell EVs. It’s capped at $7,500 for vehicles under 14,000 lbs. and $40,000 for vehicles above 14,000 lbs.^[6].

Though more EV models are IRA-eligible under a lease, dealers aren’t required to pass along a discount equivalent to the tax credit amount like they are with an EV purchase. Still, IRA tax credits are effectively making an EV lease more affordable than leasing or buying gas-powered vehicles^[7].

To add to that, EVs are 50% cheaper to operate and maintain, underscoring how driving an EV is becoming an increasingly attractive and cost-effective option.

Footnotes

1. Electric vehicle (EV) and fuel cell electric vehicle (FCEV) tax credit. Alternative Fuels Data Center: Electric Vehicle (EV) and Fuel Cell Electric Vehicle (FCEV) Tax Credit. (n.d.). https://afdc.energy.gov/laws/409  Back to content
2. Federal tax credits for plug-in electric and fuel cell electric vehicles purchased in 2023 or after. Fuel Economy. (n.d.). https://fueleconomy.gov/feg/tax2023.shtml Back to content
3. Person. (2024, January 8). Used Electric Car Prices & Market Report - Q1 2024. Recurrent. https://www.recurrentauto.com/research/used-electric-vehicle-buying-report  Back to content
4. Modified adjusted gross income (MAGI). (n.d.). https://apps.irs.gov/app/IPAR/resources/help/MAGI.html  Back to content
5. Credits for new clean vehicles purchased in 2023 or after. Internal Revenue Service. (n.d.). https://www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after  Back to content
6. NYSERDA. (n.d.). https://www.nyserda.ny.gov/All-Programs/Inflation-Reduction-Act/Businesses Back to content
7. Electric vehicle leasing is the cheapest option for new car buyers. Energy Innovation: Policy and Technology. (2023, August 23). https://energyinnovation.org/publication/electric-vehicle-leasing-is-the-cheapest-option-for-new-car-buyers  Back to content