Federal Electric Vehicle Tax Credit: Everything You Need to Know in 2024

If you are navigating the Indiana market for an electric vehicle, we have good news for you. In 2024, you can save on your taxes even if you buy a used EV. Check our overview of the latest federal EV tax credit provisions and discover more about the affordability and availability of clean transportation options in Indiana.

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 electric vehicle, thereby reducing the cost of ownership and supporting an eco-friendly approach to nature.

If you buy a new or used electric vehicle in 2024, you can benefit from the following financial incentives:

• Up to $7,500: Maximum tax credit available for new electric cars that meet all qualifying requirements. The car’s battery capacity and energy efficiency determine the credit amount. Generally, models with larger batteries are eligible for the full $7,500 credit, and it directly reduces the federal income taxes the buyer must pay.
• $3,750: If the new electric vehicle meets only one of the qualifying requirements (battery or source), the tax credit is reduced to half, with a maximum amount of $3,750.

• 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.

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:

• MSRP: Manufacturer's Suggested Retail Price of new vehicles must be less than $80,000 for vans, SUVs, and trucks and less than $55,000 for other types of EVs.
• Battery and power supply requirements: New electric vehicles must meet either the battery or power supply requirements: at least 40% of the critical minerals used in a vehicle battery must be produced in the United States or a country with a free trade agreement with the US. In addition, North America must manufacture or assemble at least 50% of the battery components. The final assembly of the vehicle must take place in North America.
• Income Limits: The tax credit phases out for individual filers with Gross Income less Allowable Withholdings (AGI) over $150,000 and joint filers over $300,000.

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: $25,000.
• Age: The car must be at least two-years old.
• Battery: The used car must have a battery with at least 7 kilowatt-hours capacity.
• Weight: The vehicle must be no more than 14,000 lbs.
• Income limits: For single filers and those married but filing separately the Gross Income must be $75,000, for a married couple filing jointly - $150,000, for the head of household - $112,500. 

You can use the online tool to get the most up-to-date information on whether your chosen model is eligible in 2024.

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.

From 2024, 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.

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 and contact us to discover all the benefits you can get.