Electric Vehicle Tax Credits: What's New in 2024

The Inflation Reduction Act incentivizes people to buy an electric vehicle (EV). Signed into law in 2022 by President Biden, it features several federal provisions aimed at tackling climate change, keeping EVs affordable, and boosting American industry. New changes to how consumers can claim credit take effect in 2024.

What Is the Electric Vehicle (EV) Tax Credit?

The EV tax credit is a federal incentive to encourage consumers to purchase EVs. Taxpayers who meet the income requirements and buy a vehicle that satisfies the price, battery, and assembly restrictions are eligible to receive up to $7,500 from the government as a tax credit.

Beginning Jan. 1, 2024, consumers can transfer their clean vehicle credit of up to $7,500 and their previously owned clean vehicle credit of up to $4,000 directly to a car dealer, lowering a car's purchase price at the point of sale. This feature allows to the consumer to immediately claim the credit rather than waiting to claim it on their tax return.

The credit aims to tackle pollution and promote the use of cleaner energy. Its latest version, signed into law with the Inflation Reduction Act, carries changes that began in 2023 and continue through 2032.

Changes Under the Inflation Reduction Act

No 200,000 Cap

A cap once prevented each automaker from selling more than 200,000 vehicles in the United States with the EV tax credit. That limit, which made it difficult for consumers to buy EVs from popular manufacturers such as Tesla and General Motors at a discount, was removed.

Clean Vehicle Definition

The EV tax credit of $7,500 once applied to a narrow range of cars. Those buying a pure EV stood to qualify in full from the credit, whereas a buyer of a plug-in hybrid or hydrogen fuel cell car could receive less than half that or, in some cases, nothing. The EV tax credit, or the “clean vehicle credit,” has been extended to include other forms of green autos, such as fuel cell vehicles.

Instant Payment vs. End of Year Tax Credit

Starting in 2024, EV credits can be cashed in at the point of sale. Previously, benefits were realized on a tax return, but consumers will enjoy the discount directly from the auto’s purchase price.

Income Restrictions

The credit is not open to those whose taxable income surpasses the following thresholds:

• Single filers—$150,000
• Joint filers—$300,000
• Heads of household—$225,000
  

Made-in-America

For a vehicle to be eligible for the EV tax credit, it must have been assembled—and have a battery built—in North America according to yearly guidelines. By 2024, at least 60% of an EV battery’s components must be manufactured or assembled in North America, with that figure rising to 100% by 2029.

Industry spokesman John Bozzella, Chief Executive Officer (CEO) of the Alliance for Automotive Innovation—a trade organization based in Washington, D.C., whose membership includes foreign automotive and truck manufacturers with U.S. assembly plants—argues that North America doesn’t have the infrastructure to source and build batteries on a scale similar to China and it could take years to meet these battery requirements.

Price Limits

According to Kelley Blue Book, for consumers to qualify for the tax credit, the maximum price limit ranges from $55,000 to $80,000, depending on make and model.

Used Vehicles

The Inflation Reduction Act introduced a tax credit in 2023 for pre-owned “clean vehicles” that are two or more years old, cost $25,000 or less, weigh less than 14,000 pounds, and are purchased from a dealer. The credit covers up to 30% of the purchase price and is capped at a maximum of $4,000.

The Bottom Line

The EV tax credit changes took effect in January 2023 with the Inflation Reduction Act of 2022. Credits can be reimbursed immediately in 2024 at the point of sale, and the legislation widened the scope of the credit to include other types of “clean vehicles,” ended the 200,000-vehicle sales cap, and extended applicability to used cars.