As of January 1, electric vehicle tax credits and the rules that govern their distribution have changed. New legislation opens the door for different models to eligibility for credits, but there are other restrictions that come into play. We’ve gathered the most important information you need to know about the new credits, so let’s dive in and take a closer look.
How Does the Used Clean Vehicle Credit Work?
Most people know that new EVs and PHEVs qualify for up to a $7,500 tax credit, but the new rules under the Inflation Reduction Act (IRA) open the door for tax credits on used models. The IRS offers a 30 percent tax credit up to a maximum of $4,000. It’s important to note that the tax credit is nonrefundable, meaning the IRS won’t issue a check if the credit results in an overpayment. The upside is that the credit will eventually be able to be applied at the point of sale, offering an immediate discount.
Do You Qualify?
Even if your chosen vehicle is eligible for a credit, there are some rules you need to follow. To receive the maximum credit, you must:
- Not be the vehicle’s original owner
- Not be a dependent on someone else’s tax return
- Buy the car for personal use and not for resale
- Not taken a clean vehicle credit in the three years prior
The IRS also outlines income requirements, including that the buyer’s adjusted gross income (AGI) not exceed:
- $75,000 for most filers
- $112,500 for heads of households
- $150,000 for married couples filing jointly or surviving spouses
Used Models that Currently Qualify for a Clean Vehicle Credit
While many new models don’t qualify for tax credits, it won’t be hard to find a used model that does. Most major automakers offer at least one vehicle on the list. That said, the government still limits the amount spent on the purchase and where the purchase can take place. Buyers can’t spend more than $25,000 on the vehicle, and it must be purchased from a licensed dealer. Like the new vehicle credit, the used model must be an EV or plug-in hybrid.
Thanks to unprecedented supply chain challenges and new vehicle shortages, used car prices climbed sharply in 2021 and 2022. The situation began to stabilize in early 2023, and used prices are slowly returning to earth. As that happens, more models will become eligible for tax credits, such as the excellent Hyundai Ioniq, the Chevy Bolt, and the quirky Volkswagen e-Golf.
How to Claim the Tax Credit
At the time of purchase, the dealer documents several pieces of information about the vehicle and its buyer. The dealer’s also responsible for sending the documentation to the IRS and the seller.
- Buyer and seller name and tax ID/social security number
- Sale date and price
- Maximum credit amount
- Vehicle identification number
- Battery capacity
Federal tax documents aren’t known for being particularly user-friendly and easy to understand. Fortunately, Form 8936, otherwise known as the Qualified Plug-In Electric Drive Motor Vehicle Credit application, is a simple two-page document with clear directions. The form can then be e-filed or physically filed with the taxpayer’s other documents.
How to Search for Used EVs
AutoTempest offers granular filters that let users drill down on several attributes, including fuel type. You can filter for electric vehicles, hybrids, and even hydrogen fuel cell vehicles, some of which are also eligible for tax credits. While there were still more people searching for diesel vehicles than EVs, the number of searches for electrified vehicles grew considerably. More users searched for specific makes and models, such as the Tesla Model 3, instead of broadly looking at fuel type.
Frequently Asked Questions
Is there still a limit on the number of EVs a company can sell before becoming ineligible for credits?
Before 2023, automakers that had sold more than 200,000 electric vehicles no longer qualified for tax credits. The cap hit Tesla, Toyota, and General Motors, removing a significant motivating factor for buyers in the market. The IRA lifted that cap but added a host of other requirements.
What is the best used EV to buy with the tax credits?
At least right now, the challenge is that many automakers are not yet eligible under the new rules. Notable manufacturers, including General Motors and Honda, have signaled their intent to become qualified manufacturers, but the government hasn’t received a list of eligible models.
Note: Our information has been sourced directly from the United States Federal Government, and is accurate as of the time of this writing.