Federal Electric Vehicle Tax Credit: Everything You Need to Know

What Is the Electric Vehicle Tax Credit?

The Electric Vehicle (EV) Tax Credit is a financial incentive the government provides to encourage the adoption of eco-friendly cars. This typically allows buyers to deduct some money from their tax liability when purchasing or leasing an eligible used electric vehicle, thereby reducing the cost of ownership and supporting an eco-friendly approach to nature.

How Much Is the EV Tax Credit in 2025?

If you buy a new or used electric vehicle in 2025, you can benefit from the following financial incentives:

1. Tax credit for new electric vehicles

• The maximum tax credit remains $7,500 for new qualifying EVs.
• The credit is split into two halves: up to $3,750 for meeting the battery assembly/manufacturing requirement in North America, and up to $3,750 for meeting the critical minerals sourcing requirement.
• For 2025, the battery component threshold is 60% minimum, and the critical minerals threshold is also 60%.
• If a vehicle meets only one of these requirements, the tax credit is halved to a maximum of $3,750.
• EVs must also meet MSRP price caps ($80,000 for SUVs, vans, pickups; $55,000 for sedans and passenger cars).
• Vehicles must be assembled in North America to qualify.
• The tax credit can be applied at the point of sale for immediate savings.
• The full $7,500 credit (or half credit if applicable) applies only to vehicles purchased by September 30, 2025; the credit expires after that date.

2. Tax credit for qualifying used electric vehicles.

• Up to $4,000: Some used EVs that meet certain criteria may qualify for a tax credit of up to $4,000, limited to 30% of the purchase price. The loan amount is determined based on the vehicle's battery capacity and other eligibility criteria.

What Are the Eligibility Requirements in 2025?

Eligibility for the electric vehicle tax credit means that your car should meet several criteria to receive the financial incentive for new and used vehicles. The main requirements are as follows:

1. For new electric vehicles

• MSRP Limits: For 2025, the MSRP cap is $80,000 for vans, SUVs, and trucks, and $55,000 for other passenger cars to qualify for the tax credit.
• Battery and Power Supply Requirements: In 2025, to qualify for the full credit, at least 50% of the battery components must be manufactured or assembled in North America, and at least 40% of the critical minerals used in the battery must come from the U.S. or free-trade agreement countries. These requirements are set to increase annually through 2027. The vehicle must be finally assembled in North America.
• Income Limits: For 2025, income limits to qualify for the new EV tax credit are AGI under $150,000 for individuals, under $225,000 for heads of households, and under $300,000 for joint filers.

Additional points:

• The sourcing rules exclude battery components and minerals from "foreign entities of concern" (e.g., China, Iran, North Korea, Russia).
• PHEVs with a minimum 7 kWh battery can qualify under similar rules.
• The credit phases out for vehicles purchased after September 30, 2025.

2. For used electric vehicles

For used vehicles, the federal EV tax credit is available upon the first transfer of title and can only be claimed once every three years.

• Price Cap: The sale price of the used EV must be $25,000 or less, including all dealer-imposed costs or fees not required by law.
• Age: The vehicle must be at least two model years old prior to the calendar year of purchase (e.g., a 2023 purchase requires a 2021 or older model).
• Battery Capacity: The used EV must have at least a 7 kilowatt-hour battery.
• Weight: The vehicle must have a gross vehicle weight rating (GVWR) of less than 14,000 lbs.
• Income Limits:
• Single filers and married filing separately: $75,000 or less
• Head of household: $112,500 or less
• Married filing jointly: $150,000 or less

Additional points:

• The vehicle must be bought from a licensed dealer who reports the sale to the IRS.
• The vehicle cannot have been claimed for the used EV tax credit by a previous buyer after August 16, 2022 (first transfer rule).
• The credit is up to 30% of the purchase price or $4,000, whichever is less.
• The credit expires September 30, 2025.

You can use the online tool to get the most up-to-date information on whether your chosen model is eligible in 2025.

Is Used Tesla Eligible for a Federal Tax Credit?

Used Teslas may qualify for a federal tax credit of up to $4,000, provided they meet the specific criteria listed above.

How to Claim Tax Credits for Electric Vehicles in Indiana?

To claim the federal electric vehicle tax credit, you should fill out Form 8936 when you file your federal income taxes. The EV tax credit is nonrefundable, meaning it can reduce or eliminate your tax liability. However, any excess credit beyond your liability will not be refunded. You also cannot carry over any remaining amount to offset future tax obligations.

The process for claiming the EV tax credit varies slightly depending on whether the vehicle is new or used. In both cases, the tax credit is a valuable incentive for consumers to switch to electric cars and support the transition to environmentally friendly transportation options.

1. Possibility of transferring tax credit to Point of Sale (POS): for new electric vehicles

In 2025, buyers of eligible new electric cars can transfer the tax credit directly to the dealer at the point of sale. This means that instead of waiting to receive the tax credit when filing their annual tax return, buyers can apply for the credit right away. This procedure reduces the initial cost of a car, streamlines the process, and eliminates the need for buyers to wait for a tax refund.

2. Obtaining a Tax return: for used electric vehicles

For qualifying used autos, the process for receiving the EV federal tax credit is similar to other credits. You must claim the tax credit for the year you purchased the vehicle. It involves filling out the appropriate forms and providing documentation to prove the car, SUV, or truck is eligible for the tax credit. The credit amount is then applied to reduce your tax liability for that year. Unlike the tax credit transfer option for new vehicles at the point of sale, buyers of used EVs must wait until they file a tax return to receive the tax credit benefit. However, it still provides a valuable financial incentive to purchase a qualified used EV.

If you are looking for an environmentally friendly option, the federal EV tax credit is great news. It can be complex and nuanced, particularly due to the uncertainty surrounding the new sourcing requirements that will be adjusted annually. Still, you can always expect expert advice if you buy a used electric car in Indiana at Indy Auto Man. Check our inventory in carlot in Indiana and contact us to discover all the benefits you can get.