3 Lies You've Been Told About EV Tax Credits

If you are in the market for a car in 2024, you might want to consider buying an electric vehicle (EV). The federal government is offering EV tax credits of up to $7,500 for qualifying new EVs, or up to $4,000 for used EVs. At a time when car insurance costs are skyrocketing, getting a discount on your EV purchase could help a lot.

There are a lot of misconceptions about EV tax credits. Let's look at a few of the big ones.

Myth No. 1: No new electric vehicles can get EV tax credits anymore

Reality: EV tax credits for purchase of a new electric vehicle can be as much as $7,500 -- but not every EV qualifies for that full amount. In fact, many EVs do not. The EV tax credits have gotten a bit confusing and limited for new cars in 2024.

The electric vehicle tax credits, also called "clean vehicle credits," were created as part of the Inflation Reduction Act (IRA), a new federal law passed in 2022. Along with encouraging more people to buy electric vehicles, the law had another goal: to create more American jobs making electric vehicles.

For that reason, the EV tax credits for new cars are limited to vehicles that were "made in the USA" -- having their "final assembly" done in North America. There are also limitations based on which country each EV battery was sourced from. So if you want the full amount of $7,500 of EV tax credits for a new EV in 2024, try to buy an electric vehicle that is entirely "made in the USA" -- and has battery materials from the right foreign countries.

According to FuelEconomy.gov, as of Feb. 23, 2024, here is the complete list of new fully electric EVs that can get the full $7,500 of new EV tax credits in 2024:

Myth No. 2: EV tax credits make you fill out a bunch of paperwork and wait for tax season

Reality: If you buy an eligible EV in 2024, it's easier than ever to get your EV tax credit. That's because car dealerships are required to tell you, at the point of sale, whether your vehicle qualifies for the tax credit -- and the dealership handles the paperwork to register the sale with the IRS.

With EV tax credits in 2024, you get an immediate discount on the purchase of your EV, right there at the dealership. You don't have to wait to file your tax return -- just ask your dealer for a copy of the "time-of-sale" report to keep for your records. But be aware of the income limits to receive EV tax credits:

• New EV tax credit: modified AGI of $150,000 or less (single filers)
• Used EV tax credit: modified AGI of $75,000 or less (single filers)

Myth No. 3: Used EVs don't qualify for good EV tax credits

Reality: EV tax credits for pre-owned vehicles might be an even better deal than for new vehicles. You can get an EV tax credit of 30% of the sale price (up to $4,000) on the purchase of a qualifying used EV. Prices of used EVs have come down significantly in the past year or so. Many recent model year EVs might still have low mileage, plenty of warranty left on the battery, and be a good value for your car-buying dollars.

And when you buy a used EV, you can get the tax credit even if the car wasn't assembled in North America, and no matter where the EV battery parts came from. This gives you a wider range of car manufacturers and models to choose from.

Here are a few examples from FuelEconomy.gov of used EVs that qualify for the EV tax credit, as of Feb. 23, 2024:

Bottom line

There's still a decent selection of EVs on car dealership lots that will get the full $7,500 EV tax credit for new cars, or up to $4,000 for used cars, in 2024. Some car dealerships might also offer discounts on other new EVs that don't get the $7,500 tax credit. Buying an EV in 2024 could be more cost-effective than you think. Just be sure to get price quotes for car insurance before you choose your EV.