Electric Vehicle Tax Credits Are About to Become Easier to Get in 2024

Electric vehicle tax credits are among the most lucrative tax breaks in the United States tax code, and have been around for years. However, there are two big changes coming in 2024 that could open the credit up to many more potential EV buyers and make these vehicles more immediately affordable. Here's what you need to know.

EV tax credits will come at the point of sale

I won't go too deep into the weeds on the details behind the electric vehicle tax credit, but the general idea is that it can be worth up to $7,500 for new electric vehicles that meet certain criteria, and as much as $4,000 for used electric vehicles.

In 2023 and previous years, the credit was claimed on the buyer's tax return. In other words, if you bought a qualifying EV in 2022 and were entitled to a $7,500 tax credit, you would have to wait to claim the credit until you filed your 2022 tax return in 2023.

As part of the Inflation Reduction Act, the credit is becoming a point-of-sale credit. Customers can choose to have the credit applied to the vehicle purchase as a down payment at the point of sale (but could still choose to wait until they file if they want to). So, if you buy a $50,000 new electric vehicle and get a $7,500 credit, you could apply that toward the purchase price and only have to pay (or finance with an auto loan) $42,500.

The credit won't depend on your tax liability

Under current tax law, the EV credit isn't a refundable one. This means that if the amount of your tax credit exceeds your tax liability, you won't get the difference as a refund. For example, let's say you qualify for a $7,500 EV tax credit in 2023 but when you fill out your tax return, your total tax liability for the year is $4,000. In this case, your credit would just be $4,000 to offset your tax liability -- the extra $3,500 won't be given to you.

This is changing as well. While we knew that the credit was becoming a point-of-sale tax break already, it was previously unclear whether people with little or no tax liability would be eligible to get the credit at the time of purchase.

The U.S. Treasury Department has now clarified that customers can choose to take the full value of the credit at the point of sale "regardless of their individual tax liability." This means that even if you owe no federal taxes for 2024, you can still get the EV credit of up to $7,500 applied to the purchase price of your qualifying vehicle.

What it all means to you

In a nutshell, you'll be able to buy a qualifying electric vehicle in 2024 and get a tax credit of as much as $7,500 before you even drive away from the dealership, even if you have little or no tax liability for the year. It's fair to say that these changes will open the EV credit up to many potential buyers who previously didn't qualify, and the instant nature of the credit could incentivize many people who are currently on the fence to go electric.

While a tax credit isn't a good reason to buy a new car all by itself, these rule changes are certainly worth knowing if you plan to eventually buy an electric car. And if you previously couldn't qualify because of your overall tax liability and are in need of a new car, 2024 could be a good year to go car shopping.