EV Tax Credit 2024: Everything You Need to Know

Starting January 2024, buyers of new electric vehicles gained access to a $7,500 tax credit, which can now be applied as a point-of-sale discount directly from car dealerships.

Salman Chaudhary, Founder Pinkywheels.com

2/11/2024

EV Tax Credits 2024
EV Tax Credits 2024

EV Tax Credits: Everything You Need to Know for 2024

The federal EV tax credit has long served as a vital incentive for encouraging the adoption of Electric Vehicles (EVs) and plug-in hybrids in the United States. As we step into 2024, significant changes have been implemented, reshaping the landscape of EV incentives and altering the eligibility criteria. In this detailed guide, we will explore the intricacies of the new regulations, provide insights into qualification requirements, and offer practical tips for navigating the EV market in 2024.

KEY POINTS

· Immediate Application of Tax Credit: Starting January 2024, buyers of new electric vehicles gained access to a $7,500 tax credit, which can now be applied as a point-of-sale discount directly from car dealerships. This change streamlines the process, allowing buyers to enjoy the financial benefit immediately upon purchase.

· Shift from Annual Tax Return: Prior to 2024, buyers had to wait until filing an annual tax return the year after their EV purchase to claim the $7,500 tax credit. However, the new regulations enable buyers to receive the benefit upfront, enhancing the affordability and accessibility of electric vehicles.

· Limited Dealer Participation: Despite the availability of the tax credit as a point-of-sale discount, not all car dealerships have adopted this practice yet. It's essential for buyers to inquire about the option of applying the tax credit at the time of purchase and ensure that their chosen dealership participates in this program.

What is EV Tax Credit?

The EV tax credit, established by the federal government, is designed to incentivize American consumers to choose EVs over traditional gas-powered vehicles. Eligible buyers can receive a tax credit of up to $7,500 upon purchasing an electric car or plug-in hybrid. However, specific income requirements and vehicle criteria must be met to qualify for this credit.

What are the Changes in EV Tax Credit for 2024?

As of January 1, 2024, significant changes have been introduced to the EV tax credit program. These changes aim to streamline the process and enhance the benefits for prospective EV buyers.

Immediate Application of the Tax Credit:

Unlike previous years, buyers can now apply the tax credit as a discount directly at the dealership, rather than waiting until tax filing season. This expedited benefit simplifies the purchasing process and makes EVs more financially accessible.

Shift in Eligibility Criteria:

The requirement to utilize the full tax credit has transitioned from owing more than $7,500 in taxes to solely considering income. This adjustment eliminates concerns about owing the IRS money if the tax liability is less than the credit amount.

Stricter Vehicle Qualification Requirements:

While the changes make the tax credit more accessible, stricter criteria for vehicle qualification have been introduced. Notably, at least 50% of the batteries and EV components must be manufactured or assembled in the US or in countries with a free trade agreement with the US. This requirement aims to bolster domestic production and ensure the sustainability of the tax credit program.

EV Tax Credits 2024
EV Tax Credits 2024

What is the Qualification Criteria?

To qualify for the full $7,500 tax credit, prospective EV buyers must navigate several criteria, including assembly location, battery origin, and pricing. Vehicles assembled in the US, Canada, or Mexico, with eligible battery components, and priced below specified thresholds, qualify for the full credit. It's essential to note that the Manufacturer's Suggested Retail Price (MSRP) serves as a strict benchmark, unaffected by discounts or incentives offered by dealerships.

Which Vehicles are eligible for EV Tax Credit?

Currently, the list of EVs eligible for the full tax credit is limited, with only a few models meeting all requirements. It's important for potential buyers to utilize the tool available on the FuelEconomy.gov website, recommended by the IRS, for the most up-to-date information on eligible models. This tool allows users to filter by purchase scenario, model year, and vehicle type, enabling them to determine which cars are eligible based on their date of delivery.

Claiming the Federal EV Tax Credit: A Step-by-Step Guide

1. Filing Form 8936: To claim the clean vehicle tax credit on your federal income taxes, taxpayers must complete and file Form 8936. This form allows you to report the purchase of an eligible electric vehicle and calculate the corresponding tax credit. It's important to note that the credit is nonrefundable, meaning it can reduce or eliminate your tax liability, but any excess credit cannot be refunded to you once your tax liability reaches zero. Additionally, any excess credit cannot be carried over to offset future taxes.

2. Year of Vehicle Delivery: The IRS specifies that the clean vehicle tax credit can generally only be claimed for the tax year in which the vehicle was delivered to you, not necessarily the year it was purchased. For example, if you bought a qualifying EV in 2023 but do not receive it until 2024, you must claim the credit on your 2024 tax return, which is filed in 2025.

3. Transferring the Credit: Taxpayers have the option to transfer the EV tax credit to the dealership for a direct discount on their purchase. This allows for an immediate benefit rather than waiting until tax filing season. However, transferring the credit does not exempt you from reporting the purchase on your taxes. If you choose to transfer the credit, you will still need to fill out Form 8936 when filing your return for that year to report your election and provide the IRS with your vehicle identification number (VIN).

4. Beware of Eligibility: It's essential for taxpayers to ensure they are eligible for the credit before transferring it to the dealer. If you receive a rebate but are later found to be ineligible, you will be required to repay the IRS when filing your tax return.

By following these steps and understanding the associated tax rules and regulations, taxpayers can effectively claim the federal EV tax credit and maximize their benefits when purchasing an electric vehicle.

EV Tax Credits 2024
EV Tax Credits 2024

How to Qualify for the 2024 EV Tax Credit?

  • Vans, SUVs, and pickup trucks must have a Manufacturer's Suggested Retail Price (MSRP) of $80,000 or less to qualify for the credit. Sedans and passenger cars are capped at $55,000, while used vehicles have a lower price cap of $25,000.

  • For new vehicles, the MSRP includes the base retail price provided by the manufacturer plus the retail price of each accessory or optional equipment present on the car at the time of delivery. Taxes and dealer-added fees are excluded from the MSRP for tax credit purposes.

Income Limit:

  • The EV tax credit imposes modified adjusted gross income (MAGI) limits for eligibility.

  • New EVs: Single and married filing separately: $150,000; Head of household: $225,000; Married filing jointly: $300,000.

  • Used EVs: Single and married filing separately: $75,000; Head of household: $112,500; Married filing jointly: $150,000.

  • Taxpayers can use MAGI from either the year the car is delivered or the previous year for qualification, providing flexibility based on income fluctuations.

Final Assembly Requirements:

  • Eligible vehicles must have undergone final assembly in North America. The National Highway Traffic Safety Administration's Vehicle Identification Number (VIN) database can be referenced to verify a car's final assembly details.

Used EV Tax Credit Qualifications:

  • Qualifying used EV purchases can earn taxpayers a credit of up to $4,000, capped at 30% of the car's purchase price.

  • Additional qualifications include:

  • The used car must be a plug-in electric or fuel cell vehicle with at least 7 kilowatt hours of battery capacity.

  • The credit is only applicable to the first transfer of the vehicle.

  • The purchase price of the car must not exceed $25,000, and the vehicle must be at least two years old and weigh less than 14,000 pounds.

  • The credit can only be claimed once every three years.

EV Tax Credits 2024
EV Tax Credits 2024

EV Rebates and Incentives

Exploring State and Local Opportunities

In addition to federal tax credits, it's crucial to consider the array of additional incentives available on the state and local levels when purchasing an electric vehicle (EV). These incentives can vary significantly by location and can further enhance the affordability and appeal of EV ownership.

For instance, California's Clean Air Vehicle program offers carpool lane access to select electric vehicles, providing an added perk for environmentally conscious drivers. Meanwhile, residents of New York may be eligible for a state-level rebate of up to $2,000 in addition to the federal tax credit, further reducing the upfront cost of purchasing an EV.

However, it's essential for prospective buyers to be mindful of any restrictions associated with applying for multiple incentives. Some states may have regulations prohibiting "double-dipping," where individuals claim both a state-level rebate and a federal tax credit for the same vehicle purchase. Understanding these restrictions beforehand can help avoid any potential complications and ensure compliance with local regulations.

Leasing an EV and the Impact on the EV Tax Credit

While individual consumers cannot directly claim the clean vehicle tax credit when leasing an EV, they may still benefit from potential savings passed down by the dealer if they opt for leasing.

Some businesses, such as dealerships and leasing agencies, may qualify for a different type of tax credit known as the commercial vehicle tax credit. This commercial credit is less restrictive compared to the clean vehicle credit available to individual taxpayers. It allows businesses to claim tax breaks for a broader range of eligible electric vehicles, even those not manufactured in the U.S.

Although the dealership receives the tax credit for purchasing the vehicle, there is potential for individual consumers to benefit. In theory, the dealer could pass down the savings by reducing the leasing cost by the credit amount.

However, it's essential for potential lessees to exercise caution. While dealerships have the option to pass on savings to customers, they are not obligated to do so. Negotiating with the dealership may be necessary to secure a discount on the lease.

Assessing the transparency of any deal claiming to pass down savings requires thorough research and comparison shopping to ensure the best possible outcome. Additionally, it's important to consider other factors related to leasing before making a decision.

EV Tax Credits 2024
EV Tax Credits 2024

FAQs: EV Tax Credit

What are the EV incentives for 2024 in California?

In 2024, new electric car buyers in California may receive up to a $7,500 federal tax credit, while purchasers of used electric cars could qualify for tax reductions of up to $4,000.

Does Volkswagen ID 4 qualify for tax credit?


Volkswagen's 2023 and 2024 ID.4 models equipped with US-manufactured SK On battery components and placed in service in 2024 will qualify for the full $7,500 federal tax credit. SK On, a division of South Korea's SK Innovation, operates the SK Battery America plant located in Commerce, Georgia. This eligibility highlights the importance of domestic battery production in accessing federal incentives for electric vehicles.

Does Volvo XC90 hybrid qualify for tax credit?

Tax Credits Available

The new Volvo XC90 qualifies for the Section 179 Tax Deduction, while the Volvo XC40 Recharge is eligible for an electric vehicle tax credit. If you have questions about claiming these Volvo tax deductions, consult with a tax professional for guidance tailored to your situation.

Does Mitsubishi Outlander PHEV qualify for tax credit?

While the 2023 Mitsubishi Outlander PHEV doesn't qualify for the $7,500 federal tax credit upon purchase, leasing offers an alternative. With leasing, you can access instant savings on a new EV lease without having to wait for tax season.

Conclusion

The 2024 EV tax credit presents both opportunities and challenges for prospective buyers. Understanding the updated regulations, qualification criteria, and available incentives is crucial for making informed decisions. Whether purchasing or leasing, thorough research and proactive negotiation can help maximize the benefits of the EV tax credit, facilitating a smoother transition to electric vehicles.

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