3 Tips to Maximize Your EV Tax Credits

The past few years of rising costs of car insurance, car repairs, and other expenses of car ownership have been painful. But many Americans are still feeling optimistic about their personal finances and want to buy a new car in 2024.

One way to get a better deal on buying a car in 2024 is to buy an electric vehicle. Many new and used EVs (and some plug-in hybrids) qualify for EV tax credits that can give you a significant discount at the dealership.

Let's look at a few ways to maximize your EV tax credits and get a better price on buying a car in 2024.

1. Buy a new vehicle that gets a $7,500 EV tax credit

The best way to get the biggest EV tax credit is to buy a new electric vehicle. But many new EVs don't qualify for the full $7,500 EV tax credit. The IRS has complex rules for where the new EVs must be made (with "final assembly" in North America), and where the EV battery materials can come from.

Most of the new EVs that get the full $7,500 tax credit were made by American car companies. Here is a full list of car companies with new EVs (and one plug-in hybrid) that can get the full $7,500 new EV tax credit, as of March 1, 2024:

• Cadillac Lyriq
• Chevrolet Bolt (EV and EUV)
• Chrysler Pacifica Plug-in Hybrid Electric Vehicle (PHEV)
• Ford F-150 Lightning (Standard and Extended Range Battery)
• Tesla (several varieties of Model 3, Model X, and Model Y)
• Volkswagen ID.4 (several varieties)

Some new EVs and plug-in hybrids will qualify for a reduced tax credit of $3,750. Check out the full list of qualifying new vehicles at FuelEconomy.gov.

2. Buy a used vehicle that gets $4,000 in used EV tax credits

Demand for used EVs has declined during 2023, and that means there might be some good deals on pre-owned electric vehicles. Many car shoppers are worried about range anxiety, but many used EVs might still have a lot of warranty left on the battery. Buying a used EV could help you maximize your EV tax credits by getting an even bigger discount on an undervalued car.

You can get used EV tax credits of up to $4,000 if:

• You buy a qualifying used EV with a sale price of $25,000 or less.
• The used vehicle is from a model year that's at least two years older than the current year (so: model year 2022 and older).
• Your income is below a certain limit (the income limits are lower for used EV tax credits than for new ones).

The pre-owned EV tax credit is equal to 30% of the used car's sale price, or up to $4,000, whichever is less. (So if you buy a $25,000 used EV, you get a $4,000 credit. If you buy a $12,000 used EV, you get a $3,600 credit.)

Here's a fun aspect of the used EV tax credit: You can buy a much wider range of vehicles! Used EV tax credits don't have the same complex rules about "where" the car was made, so you aren't limited to mainly American car makers.

FuelEconomy.gov has the full list of used cars that qualify for EV tax credits, but here are a few examples:

• Audi e-tron (2019, 2021-2022)
• BMW 330e (2016-2018, 2021-2022)
• Hyundai Kona (2019-2022)
• Hyundai Tucson Plug-in Hybrid (2022)
• Kia Niro EV (2019-2022)
• Porsche Cayenne E-Hybrid (2015-2021)

Buying a used EV might give you a better price on car insurance, too. And if range anxiety is a concern of yours, buying a used plug-in hybrid can give you EV tax credits and a reassuring, gas-powered engine.

3. Don't want to buy an EV? Leasing can help you save

Here's one last strategy to maximize EV tax credits: lease an EV. If you lease an electric vehicle, the dealership might (but is not required to) give you a discount equal to the price of the EV tax credit. That's because on leased EVs, dealerships themselves claim the EV tax credits -- and they (hopefully) will pass that discount on to you.

I personally would not lease a car; I prefer to buy my vehicles and own something after the auto loan is paid off. Auto leasing is not the right choice for every situation. But if you're worried about losing money to depreciation on a newly purchased EV, if you want to try an EV before you commit to a next-generation EV battery in a few years, or if you just want a lower monthly payment, leasing an EV could be worth considering.

Leasing an EV can give you some of the upsides of maximizing EV tax credits, without the commitments and maintenance costs of car ownership. You still have to pay for car insurance with a lease though, and the insurance costs might be higher than you'd pay on a car you own.

Bottom line

The best way to maximize your EV tax credits is to choose the right vehicle. Only a short list of cars qualify for the full $7,500 of new EV tax credits. But if you're willing to look at used vehicles, you can find a much wider selection of makes and models -- with used EV tax credits of up to $4,000. Be sure to shop around for price quotes on EV auto insurance before you go to the dealership.