President Joe Biden's Inflation Reduction Act (IRA) aims to address the deficit as well as inflation, and places a big emphasis on fighting climate change. Part of the legislation revamped the existing EV tax credit, and this change has sparked some confusion. That confusion could compound in 2024, as the new year heralds further shifts to the EV tax credits.
Here's a closer look at how the EV tax credit works for 2024 and which vehicles are eligible.
What exactly are EV tax credits?
A tax credit is money off your final tax bill, in this case for buying a new or used electric vehicle. This credit, which is offered until December 2032, applies to "fully electric vehicles and plug-in hybrid vehicles" that meet certain requirements, explains NPR.
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The credit can be up to $7,500 for new EVs. For used vehicles, it's "up to $4,000, limited to 30% of the sale price," according to Nerdwallet. The exact amount is determined based on a calculation that takes into consideration factors such as the vehicle's sourcing and assembly.
What's changing for EV tax credits in 2024?
If you're hoping to take advantage of the EV tax credit, there are a few notable changes in 2024 to be aware of:
Fewer models qualify. "The bad news is that fewer vehicles are now eligible for federal tax credits, and even fewer are eligible for the maximum $7,500 credit," reports CNN Business. While many vehicles remain eligible, "the Tesla Cybertruck All-Wheel Drive, some Tesla Model 3s, the Chevrolet Blazer EV, and the Nissan Leaf are some of the vehicles that lost eligibility for buyer tax credits," according to Investopedia. If you have a certain model in mind, you can use the tool on the FuelEconomy.gov website to find the latest information on eligible vehicles.
Battery and battery component requirements are tightening. Among the stipulations that a vehicle must meet to qualify for the full EV tax credit are steeper requirements regarding batteries and the critical minerals used in a car's battery. In 2024, 60% of a car's battery "must be assembled or manufactured within North America," and "50% of critical minerals in the car's battery must be extracted or processed within the U.S. or within a country with whom the U.S. has a free-trade agreement," explains Nerdwallet. Further, per Nerdwallet, "beginning in 2024, vehicles may also not source battery parts from a foreign country of concern (e.g., China)."
You can now get an instant rebate. Whereas before it was necessary to wait to file your tax return to get your credit, now "there's a new option to take the credit as a rebate right when you purchase the vehicle," reports NPR. Additionally, if you opt to take the credit as a rebate, "you get the full credit, regardless of your tax liability."
According to CNN Business, "whether these new tax credit rules, or last year’s rules, apply depends on when the vehicle was 'placed into service,' to use IRS terminology — in other words, "even if you signed the paperwork to purchase a vehicle in 2023 but won't take delivery of the vehicle until this year, the new 2024 tax rules apply."
Who (and which electric vehicles) will qualify for the credit?
To claim an EV tax credit, you must meet certain income limits. For new cars, your modified adjusted gross income (AGI) must be $150,000 or less ($300,000 for married couples filing jointly, and $225,00 for those filing as head of household). For used cars, the income cap is $75,000 for single filers, $112,500 for heads of household, and $150,000 for married couples filing jointly. However, as NPR underscores, this limit is based on adjusted gross income rather than total income, and "[c]ontributions to a retirement account, among other things, reduce a taxpayer's AGI."
Further, the vehicle you're purchasing must meet certain requirements. For instance, it must be made in the U.S. and meet "battery size and vehicle weight requirements," per NPR. Additionally, the vehicle must fall under price limits: $55,000 or less for new cars, $80,000 or less for trucks and SUVs, and $25,000 or less for used vehicles.
