How Much Could an Electric Vehicle Tax Credit Save You?

The electric vehicle tax credit can be lucrative, but there are some important rules.

An electric vehicle tax credit can save you as much as $7,500. It is one of the most lucrative credits in the United States tax code and can have a big impact when it's time to file your taxes. But there's a lot more to the story than just the headline number. Here's a rundown of how much the credit can be for new and used EVs, and the important rules and requirements you need to know about before you start shopping.

The clean vehicle tax credit for new EVs

As mentioned, the clean vehicle credit is worth as much as $7,500 for new electric vehicle purchases in 2023. But in order to qualify, you and your vehicle will need to meet certain criteria.

First, the credit is income-restricted. In order to qualify, your modified adjusted gross income (MAGI or modified AGI) cannot exceed these limits:

• $300,000 for couples filing a joint tax return
• $225,000 for head of household filers
• $150,000 for single filers and all others

The vehicle must also meet certain criteria, such as having a battery pack with capacity of at least seven kilowatt hours, and a gross vehicle weight rating (GVWR) of less than 14,000 pounds. Plug-in hybrids can qualify, but they need to meet this battery pack requirement. It also needs to have its final assembly in North America, although it does not have to be made by an American company.

There were two very significant changes to the clean vehicle credit for the 2023 tax year. First, there is no longer a maximum number of cars each manufacturer can sell that qualify for the credit. And second, there is now a maximum manufacturer's suggested retail price (MSRP) of $80,000 for vans, SUVs, and trucks, or $55,000 for other vehicles (including sedans). So, some popular EV models, such as the Lucid Air or Tesla Model S automatically will not qualify for the credit.

I won't go too deep into the details of how the credit is calculated, but the short version is that most people who meet the criteria discussed in this section and buy a fully electric vehicle that was assembled in the United States will qualify for the full $7,500 credit. Some plug-in hybrids will get a lower credit because of their battery pack capacity, and the credit will eventually depend on where battery components were made.

Used electric vehicles might be eligible

Another big change to the clean vehicle credit for the 2023 tax year is that used electric vehicles can be eligible for a credit for the first time ever. The used EV version of the credit is capped at 30% of the sale price of the vehicle, or $4,000, whichever is less. However, the criteria and limitations for the used EV credit are even more restrictive than the credit for new EVs:

• Your income (modified AGI) must be below $150,000 if married filing jointly, $112,500 if you file as head of household, or $75,000 if you use any other filing status. These are half the limits to get a credit for a new EV.
• The vehicle must be from at least two model years earlier than when it is bought.
• The vehicle must be purchased from a dealer.
• The sale price of the vehicle must be $25,000 or less (this is likely to be the most limiting factor in practice).

Don't forget about state incentives

In addition to the federal tax credit for clean vehicles, many states have their own tax incentives. For example, Colorado offers credits ranging from $2,000 to $8,000 for purchases of electric vehicles, Massachusetts offers credits of as much as $3,500 on electric vehicles with purchase prices under $55,000, and New York offers rebates of as much as $2,000, just to name a few. So, be sure to check if your state has any tax benefits you might qualify for.

The bottom line

The short answer is that an electric vehicle tax credit can add as much as $7,500 to your tax refund, or more if your state has its own tax incentives. But as we've seen, just because you buy an electric vehicle does not mean you'll get it -- so be sure you and the vehicle you purchase qualify for a credit if that's a factor in your vehicle-buying decision process.