A decade ago electric vehicles were a rarity on the road. Back then your choice was pretty much deciding what color Nissan LEAF you wanted. Fast forward to today and it seems like parking lots are now dotted with electric vehicles all over, along with charging stations to feed them. One reason for the boost in electric vehicle adoption was a federal EV tax credit program for those who opted to buy a new plug-in electric vehicle. So how does the EV tax credit work?
Charging Up The EV Market
After the financial collapse of 2008 the United States government was looking to get the economy going again. The American Recovery and Reinvestment Act of 2009 (ARRA) was a stimulus package designed to do just that. Inside the ARRA were incentives to promote greater adoption of electric vehicles. One path was through a federal tax credit for EV purchases. The base EV tax credit was $2,500 with more added for each kilowatt-hour of battery capacity (but not not more than $5,000). All together a buyer could expect a maximum federal EV credit of $7,500 to ease the purchasing pain. Some savvy buyers figured out that the credit could also be used towards a lease, with some people managing to acquire a brand new Nissan LEAF for just over $200 per month. But the program was designed to wind down after a certain quota of electric vehicles were sold. Starting in 2018 Tesla was the first automaker to lose full tax credit availability due to sales numbers.
How Do EV Tax Credits Work?
First a buyer has to purchase a vehicle from the approved list found on the U.S. Department of Energy website. Once the purchase is complete the dealer will supply the new owner with paperwork documenting the sale and the qualification from the manufacturer of the vehicle for a EV federal tax credit. Now comes the part where you have to know the difference between a tax credit and a tax deduction. A tax deduction simply reduces what the IRS considers as your overall income, which is good but might not affect the amount of tax money you actually owe. A tax credit on the other hand is a dollar-for-dollar reduction in the amount of tax money you owe the IRS. So on a new EV purchase a buyer that owed $20,000 in taxes would have seen that number reduced to $12,500.
How Do You Claim An EV Tax Credit?
Buying a qualified plug-in electric vehicle kicks off the tax credit process. Once the sales paperwork is done the buyer then needs to fill out Form 8936 and send it to the IRS along with their normal tax paperwork. That’s how the old 2009 EV federal tax credit worked and still works for the new tax credit. But the new EV tax credit 2022 will streamline things a bit. Electric vehicle buyers in 2024 will be able to transfer their tax credit directly to the car dealer so that the overall vehicle price is reduced immediately. No waiting to file your taxes in order to collect on the tax credit benefit.
What Qualifies For The 2022 EV Tax Credit?
The rules for the new 2022 federal EV tax credit are a bit different than the old tax credit. Under the Inflation Reduction Act of 2022 vehicles are now required to have their final assembly completed in North America to claim the Clean Vehicle Credit. Unfortunately it may not be as clear cut as to if a vehicle was completely assembled in North America, so the NHTSA has a handy VIN decoder to help identify where a vehicle was manufactured.
Here is a list of potential plug-in Electric vehicles that may quality for the new EV tax credit:
- 2022 Audi Q5
- 2022-2023 BMW 330e
- 2022 BMW X5
- 2022 Chrysler Pacifica PHEV
- 2022 Ford Escape PHEV
- 2022 Ford F-Series
- 2022 Ford Mustang MACH E
- 2022 Ford Transit Van
- 2022 Jeep Grand Cherokee PHEV
- 2022 Jeep Wrangler PHEV
- 2022 Lincoln Aviator PHEV
- 2022 Lincoln Corsair Plug-in
- 2022 Lucid Air
- 2023 Mercedes EQS SUV
- 2022-2023 Nissan LEAF
- 2022 Rivian EDV
- 2022 Rivian R1S
- 2022 Rivian R1T
- 2022 Volvo S60
Keep in mind that this list is evolving as automakers adjust to fulfill the EV tax credit bill requirements, so make sure to check the most current listings on the U.S. Department of Energy website. You can also check the EV tax credit calculator to see how much of a tax credit is available on a certain vehicle.
But Wait, There’s More!
Up until now these tax credits were only for new electric vehicle purchases. The Inflation Reduction Act of 2022 carves out a potential $4,000 tax credit (or 30% of the sale price whichever is lower) towards purchasing a used electric vehicle. The details on this used EV tax credit are less focused on where the vehicle was built, and more on the sale price and vehicle age. If a used EV is on your shopping list, it is best to check with the dealership to see if it qualifies for this new tax credit.
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Photo courtesy of Wikimedia Commons.
With an automotive writing career spanning over two decades, Brian has a passion for sharing the automotive lifestyle. An avid DIYer he can usually be found working on one of his many project cars. His current collection includes a 1969 Olds Delta 88 convertible, BMW E46 sedan, and a slant-6 powered 1975 Plymouth Duster.