EV Tax Credit 2023: New Rule Changes and Which Vehicles Are Eligible

New EV tax credit rules for 2023 are here thanks to the Inflation Reduction Act's focus on clean energy. But ever since the IRA became law, Changes to the EV tax credit, which are supposed to encourage what the law calls "clean vehicle" use, have turned out to be a mix of good and not-so-good news for some EV industry manufacturers. 

Also, questions have been raised in the last few months about everything from how EV tax credits work to which electric vehicles qualify for the up to $7,500 tax break for 2023, and whether those EVs are classified as cars or SUVs for purposes of the credit. Most recently, the Treasury Department and the IRS released stricter EV tax credit rules that as of April 18, further limit the number of electric vehicles that qualify for the full tax credit.

UPDATE: Right now, very few EVs qualify for the full $7,500 tax credit. Some electric vehicles that don’t qualify include about nine models from mostly foreign manufacturers including Hyundai, Volkswagen, BMW, Rivian, Nissan, and Volvo. However, the entire EV fleet from GM — including the Cadillac LYRIQ and Chevy Bolt EV — appears to be eligible for the full $7,500 tax credit. Some Tesla models are also eligible. (More on which vehicles qualify for the credit as of April 18, below). 

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But confusion aside, electric vehicle tax credits can benefit some consumers. So, it's important to know how the 2023 credit works and which vehicles currently qualify for the EV credit, according to the IRS. Also, you need to know how to claim the EV tax credit on your federal tax return. Read on for some answers.

EV Tax Credit 2023: How it Works

• For EVs placed into service in 2023, the Inflation Reduction Act extends the up to $7,500 EV tax credit for 10 years — until December 2032. The tax credit is taken in the year that you take delivery of the EV. The exact amount of the credit is based on a calculation that considers factors like the vehicle’s sourcing and assembly (more on sourcing requirements later). 
• Some Used Electric Vehicles Are Eligible: Used EVs (i.e., previously owned "clean vehicles" that are at least two years old) have a separate tax credit of either up to $4,000 or 30% of the price of the vehicle, whichever is less. However, a previously owned EV can’t qualify if it’s purchased for resale.
• Under the IRA, the EV tax credit applies to any “clean vehicle.” So, a hydrogen fuel cell car, for example, or a plug-in hybrid vehicle with 4-7 kilowatt hours of battery capacity, could qualify. Some commercial clean vehicles can also qualify — depending on weight.
• You have to buy the "clean vehicle" for your own use (i.e., it can be purchased for resale) and use it primarily in the United States.
• The exact 2023 EV credit amount depends on when you placed the vehicle in service and whether your chosen electric vehicle meets battery and mineral components (more on battery and mineral components below). But, vehicles placed in service on April 18, and after, that meet both battery and mineral components, will be eligible for the full $7,500 credit. Vehicles placed in service on April 18 or after that meet either the mineral or battery components will be eligible for a tax credit amount of $3,750.

Another New EV Credit Rule Coming in 2024. Another new rule is that if you’re buying a clean vehicle, you will have the option, beginning in 2024, to take the EV tax credit as a discount at the time you purchase the vehicle.

Essentially, you would be transferring the credit to the dealer, who would be able to lower the price of the vehicle by the amount of the credit. This means that you won’t have to wait until it’s time to file your tax return to benefit from the electric vehicle tax credit.

EV Tax Credit Income Limits 2023

There are income limits on who can claim the EV tax credit. Your modified adjusted gross income (sometimes called MAGI or AGI) is used for the following income limits. When claiming the EV credit, the IRS says that you can use the lesser of your AGI in the year you take delivery of your EV or your AGI from the year before you took delivery of the vehicle.

• If you’re single, and your modified adjusted gross income is over $150,000, you won’t qualify for the EV tax credit.
• The EV tax credit income limit for married couples who are filing jointly is $300,000.
• And, if you file as head of household and make more than $225,000, you also won’t be able to claim the electric vehicle tax credit.
• For all other filing statuses, the EV credit income limit is $150,000.

Which EVs Qualify for the Clean Vehicle Tax Credit?

Which vehicles qualify for the electric vehicle tax credit is complicated for 2023. Of course, the EV tax credit income limits mean that some high-earning buyers won't be able to claim the credit. But the North American assembly requirement (more on that below), and price caps, also mean that several popular clean vehicles don’t qualify for the EV tax credit.

• EV Tax Credit Price Limits. Vans, pickup trucks, and SUVs with a manufacturer’s suggested retail price (MSRP) of more than $80,000 won’t qualify for the credit.
• For clean cars to qualify for the EV tax credit, the MSRP can’t be more than $55,000. 
• Also, if you buy a used clean vehicle, it will only qualify for the tax credit if it costs $25,000 or less. And in case you were wondering, “used” or “previously owned” for purposes of the EV tax credit, means that the car is at least two years old. 

The IRS and the Treasury Department have published information designed to help you know whether the vehicle you want to buy will qualify for an EV tax credit under the Inflation Reduction Act. That information includes the Department of Energy’s page on electric vehicles that have final assembly in North America (opens in new tab).

There are also answers to frequently asked questions (opens in new tab) about the EV tax credit and which cars qualify on the IRS website. The agency also regularly updates its own list of eligible EVs (opens in new tab) purchased in, or after, 2023. The IRS says that it will continue to update this list.

The Department of Transportation also has a tool on its website (opens in new tab) where you can enter the vehicle identification number (VIN) of the electric vehicle you're interested in to determine its eligibility for the EV tax credit. This guidance might help you decide when it’s best (tax-wise) to buy an EV.

SUV EV Classification Change

Additionally, to address some of the ongoing confusion around vehicle classification, the Treasury and the IRS released guidance (opens in new tab) saying that it will now use criteria based on the Environmental Protection Agency’s (EPA) Fuel Economy Labeling Standard to determine whether a vehicle is a car or an SUV. For automakers and consumers, that means that some SUVs are eligible for EV tax credits, where they weren't previously. 

The new guidance is retroactive to January 1, 2023. So, if you took possession of your EV in January of this year, you can use this new classification to determine whether the vehicle you purchased is eligible for the tax credit.

Keep an eye on the IRS' list of eligible EVs (opens in new tab) purchased in or after 2023.

EV Tax Credit Update: New Rules as of April 18

IRS guidance released on March 31, 2023, limits the number of EVs that qualify for the full $7,500 EV tax credit. The new 2023 EV tax credit rules, which address requirements for critical mineral and battery components for electric vehicles and will be finalized this summer, are effective for EVs placed into service after April 17, 2023. 

That essentially means that an electric vehicle that qualified for the up to $7,500 tax credit on April 17, might, on April 18, only qualify for half the tax credit amount, or perhaps, no EV tax credit at all.

“Treasury is taking an important step that will help consumers save up to $7,500 on a new clean vehicle and hundreds of dollars per year on gas,” Treasury Secretary Janet Yellen said in a statement about the EV credit rules.  

UPDATE: As of April 18, only a few EVs qualify for the full $7,500 tax credit. Some electric vehicles that don’t qualify include about nine models from mostly foreign manufacturers like Hyundai, Volkswagen, BMW, Rivian, Nissan, and Volvo.

Some Tesla models, like the Model Y and the Model 3 Performance, are eligible for the full EV credit, other Tesla EVs are only eligible for half the credit or $3,750. And if you’re interested in a Cadillac LYRIQ or Chevy Bolt EV, the full electric vehicle lineup from GM appears to be eligible for the full $7,500 EV credit.

You can find the full list of vehicles qualifying for the credit on the federal fueleconomy.gov website.

What else can you do? If you’re in the market for a new or used EV, you should double-check the current list of qualifying clean vehicles. You can also take a look at the IRS’ FAQ Fact Sheet for the clean vehicle tax credit. Also, keep in mind that next year (i.e., in 2024), the EV tax credit rules could change yet again.

How to Get the EV Credit on Cars Bought Last Year

What happens to the EV tax credit for electric vehicles that were purchased last year? The IRA offers relief for EV buyers who had written, binding sales contracts from last year to purchase EVs that will be placed in service (which for IRS purposes means, “delivered”) on or after the IRA became effective. 

Essentially, if you purchased an electric vehicle before the IRA became effective (so, before August 16, 2022), and that vehicle is otherwise eligible for the old EV tax credit, you can claim that credit under the rules that applied before the Inflation Reduction Act became law. (That's true even if you didn't take possession of the EV until after that date.)

Also, the North American final assembly requirement doesn't apply before the IRA effective date. But remember: You need to have a written, binding sales contract to substantiate your claim for the EV tax credit.

What About EVs Purchased and Delivered Between August 16 and December 31 of 2022? If you purchased and took possession of your EV between these dates, the rules for claiming the EV tax credit before the IRA became law still apply, except that the final assembly requirement applies.

So, you'll need to check to see (opens in new tab) if the EV you purchased meets the final assembly requirement in the Inflation Reduction Act (i.e., is eligible for the EV tax credit). And for more details from the IRS on new EVs purchased last year, or before, visit the IRS website (opens in new tab).

EV Sourcing and Manufacturing Requirements

Before the IRA, manufacturers that produced more than 200,000 electric vehicles couldn’t qualify for the EV tax credit because it was phased out once the manufacturer reached the 200,000-car cap. The IRA removed that cap. However, to spur domestic production of clean vehicles, the IRA also requires that the final assembly of qualifying clean vehicles occur in North America. 

The final assembly requirement became effective as of the day President Biden signed the IRA into law last August 16. There is a similar requirement that minerals and other key components (i.e., battery components) that are used to manufacture EVs, also be primarily sourced in North America. Preliminary rules for those requirements were released at the end of March and will be finalized this summer.

Note: The EU and other countries have expressed concern over the IRA’s manufacturing requirements for EVs. The worry is that the requirement that EVs be primarily built and sourced in North America to qualify for the EV tax credit, could have a discriminatory effect on EU manufacturers. Swedish officials and officials from other countries like South Korea, on behalf of electric vehicle industry manufacturers like Kia and Hyundai, have expressed similar concerns.

How to Claim the EV Tax Credit 

To claim the EV Tax credit, you file IRS Form 8936 with your federal income tax return. To complete the form, you’ll need the VIN for your electric vehicle. Form 8936 is also used to determine your tax credit for some qualified two or three-wheeled plugin EVs. 

EV Home Charger Tax Credit 2023

If you're in the market for an EV home charger, the IRA revives a credit for electric vehicle chargers that previously expired two years ago. The "Alternative Fuel Refueling Property tax credit" is extended for ten years — through December 31, 2032.

The rules for claiming the EV charger credit are changed a bit under the Inflation Reduction Act. Essentially, a business that installs an EV charger (and meets certain labor and construction requirements) can still benefit from a tax incentive of up to 30% of the total cost of equipment and installation. The tax credit, per property item, is up to $100,000.

For home EV charging station installations, the tax credit is 30% of the costs of hardware and installation for qualified property, like EV chargers.

Also, beginning this year (2023), the tax credit for business and home installations will apply to other EV charging equipment, like bidirectional (i.e., two-way) charging equipment.

Other 2023 Clean Energy Tax Credits

The Inflation Reduction Act contains billions of dollars in tax credits and incentives, not just for eligible EVs. Other 2023 tax credits in the IRA that could benefit you involve green home improvements like home solar. 

More From Kiplinger on Clean Energy Tax Credits

• The Federal EV Charger Tax Credit is Back
• Stricter Electric Vehicle Tax Credit Begins April 18
• Tax Credits for Energy-Efficient Home Improvements
• Federal Electric Bike Tax Credit Would Offer Up to $1,500