Don't Miss Out on These EV Tax Credits

Electric vehicle (EV) sales have slowed in 2024, and some people are wondering if EV tax credits are actually a good deal. After all, the list of vehicles that qualify for the full $7,500 new EV tax credit has shrunk in 2024. Combine that with range anxiety, EV car insurance costs, and recent big price declines of used EVs, and you might wonder if buying an EV in 2024 is a smart move.

But there is another EV tax credit that offers excellent value. Buying a pre-owned EV can give you a tax credit for 30% of the sale price, up to $4,000.

If you want a good deal on a used electric vehicle in 2024, here's why you won't want to miss out on used EV tax credits.

What are used EV tax credits?

A lot of the news coverage of EV tax credits has focused on the $7,500 credit for qualifying new vehicles. But the problem is: not all "new" EVs qualify for that full amount. Many foreign car brands are not eligible for the new EV tax credit because their EVs are not made in North America. Other popular makes and models cannot get the full $7,500 credit because of where the car companies source their EV batteries.

Fortunately, there's another option for car buyers in 2024: used EV tax credits. The pre-owned EV tax credit is 30% of the used car's sale price, up to $4,000.

Which used electric vehicles qualify for used EV tax credits

To get the pre-owned EV tax credit, an electric vehicle must:

• Be purchased from a car dealership
• Have a sale price of $25,000 or less
• Be from a model year at least two years older than the current calendar year (so: 2022 model year or older, as of 2024)

The used EV tax credit is more flexible and widely available than the credit for new cars. You don't have to worry about where a used EV was built or where its battery materials came from; you can just focus on finding a good deal on a pre-owned car -- and then getting an extra discount of up to $4,000!

Which car buyers qualify for used EV tax credits

Just as not all vehicles qualify for EV tax credits, not all car shoppers may claim this special bonus discount from Uncle Sam. The IRS rules limit the used EV tax credit to people below certain income levels.

According to the IRS rules, here's what your modified adjusted gross income (AGI) needs to be in order to get the used EV tax credit:

• $150,000 for married couples filing jointly
• $75,000 for single filers

If you're a higher earner, you might want to double-check to see if you qualify. Fortunately, the IRS lets you qualify based on modified AGI from "this year" (when you took delivery of your newly purchased car) or the previous year, whichever is lower.

Surprising benefits of used EV tax credits

I don't plan to buy a new car this year, but if I was going to buy in 2024, I would buy a used electric vehicle (or a used plug-in hybrid, which also qualifies for EV tax credits). The used EV tax credit is offering significant value, especially when you consider how much prices of used EVs have declined.

Here are two big benefits of used EV tax credits.

Bigger discounts than (some) new car tax credits

Some new electric vehicles only qualify for $3,750 of tax credits, while used EV tax credits can reach $4,000. It's impressive to realize that a $20,000 pre-owned EV can give you a bigger tax break than a more expensive new car.

More choices of electric vehicles

The used EV tax credit doesn't have the same strict requirements about "made in North America" as the new car version. That means freedom! If you go with a used car, you can choose from a wider range of car companies, makes, and models.

For example, according to my latest count on FuelEconomy.gov, as of Feb. 24, 2024, there are a total of 27 new vehicles (EVs or plug-in hybrids) that qualify for new EV tax credits. And those qualifying new cars come from only eight auto companies.

The used EV tax credit gives you many more options. I counted 29 eligible car companies, from BMW and Porsche to Toyota and Volvo. And there are dozens of used EVs available that can qualify for the pre-owned EV tax credits, including some really fun-looking cars, like the Ford Mustang Mach-E.

Bottom line

Buying cars is like buying stocks: sometimes you have to go against the conventional wisdom. Zig where others zag. Find the undervalued opportunities. I believe that used electric vehicles are underpriced right now. Lots of people are shying away from used EVs because of range anxiety, or waiting for the next generation of new EVs with better batteries.

But the current generation of used EVs and plug-in hybrids have a lot of life left in them. What if you could find a low-mileage used EV (or plug-in hybrid) with a battery that's still under warranty? The previous owners already took the biggest hit on depreciation, and now you can drive it at a discount. Car insurance costs for a used EV might also be cheaper than a new car. You can find out by shopping around with the best auto insurers. It's not every day that the federal government offers to give you $4,000 to help buy a car. You might want to take this discount from Uncle Sam.