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Electric vehicle tax credits: What to know before you buy

Close up of plug in electric car
mseidelch/Getty Images
Close up of plug in electric car
mseidelch/Getty Images
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Electric vehicles are no longer a transportation option that appeals predominantly to climate-conscious car buyers. The EV market has experienced dramatic growth over the past few years, with registrations increasing by 60 percent through the first few months of 2022, according to Experian.

At the same time, the electric vehicle options continue to diversify and now include a wide selection of styles and price points. Driving electric also comes with many money saving perks. Besides the obvious — saving on the cost of gas — there are electric car tax credits provided to those who purchase an electric vehicle. Depending on your home state, owning an electric vehicle can save you thousands.

EV fast facts

The easiest way to see how much the market has grown is to look at recent EV information.

  • 4.6 percent of new registrations as of the first quarter of 2022 were electric vehicles (Automotive News). 
  • California has the highest percentage of new EV registrations as of December 31, 2021, with approximately 39 percent (U.S. Department of Energy). 
  • By the end of 2021 there were about 16.5 million EVs on the road. (International Energy Agency). 
  • The state of California has the highest number of charging stations with 14,463, followed by New York, Florida and Texas (U.S. Department of Energy).

What is the EV tax credit?

The EV tax credit is a federal incentive built to encourage drivers to purchase an electric vehicle. This incentive is not a check you receive in the mail following a vehicle purchase, but rather a tax credit worth up to $7,500 that you become eligible for. This credit applies to all electric and plug-in vehicles, but specific credit amounts can be found via the U.S. Department of Energy’s website, fueleconomy.org. 

How to qualify

To qualify for available incentives, your vehicle must meet certain specifications, including:

  • Have been purchased after December 31, 2009. 
  • Must be an electric or hybrid vehicle. 
  • Must be a new vehicle, not used. 
  • Must be a purchased vehicle, not leased 
  • Have a weight rating of up to 14,000 pounds. 
  • Hold a battery capacity of at least four kilowatt hours (kWh). 
  • Use an external plug-in recharge source. 

It is also important to remember that purchasing the vehicle alone does not ensure that you get the tax credit. You must file Form 8936 with the IRS. 

Do leased vehicles qualify for an EV tax credit?

The federal tax credit does not apply to those leasing electric vehicles. Instead, that money will go to the lessor. But this still can lower a monthly payment — if the lessor chooses to factor that incentive into your lease agreement. Mention this during negotiation to try and save money.

Certain states have incentives that apply regardless of whether you are leasing or buying.

Will the federal EV tax credit always be around?

It is likely that the credit will be around indefinitely, especially with increased pushes for more climate-aware vehicles. But the available vehicles are constantly shifting. This is due to the phase-out structure of tax credits. 

When a particular manufacturer reaches 200,000 electric vehicles sold for use in the United States, those vehicles are no longer eligible for credits. Because of this rule, it’s important to check if the vehicle you intend to purchase is still available for credit. 

Can a household receive multiple EV tax credits?

If two members of the same household purchase electric vehicles for themselves, they will be able to separately claim the credit for their individual cars. If the two buy an EV together, the credit may only be claimed once.

Income and the EV tax credit

Any driver who submits the necessary information for a qualifying vehicle using Form 8936 may be eligible for an EV tax credit. But the type and amount of income that you receive can affect what tax credits you receive.

State and local EV tax credits and incentives

Unfortunately, not every state offers EV tax credits and incentives. In fact, more than half of the states in the country do not have an EV tax credit program. So, before you set out to buy a charging station for your garage, determine how much you can save in your home state.

EV tax credits by vehicle brand

Here are some specific EV tax credits offered by vehicle brands. Just as each state differs, consider the benefits from one vehicle brand compared to another.

Vehicle brand  Available credit 
Audi $4,502 to $7,500
BMW $3,793 to $7,500
Chevrolet No longer eligible
Fiat/Chrysler $7,500
Ford $4,007 to $7,500
Honda $3,626 to $7,500
Hyundai $4,543 to $7,500
Jaguar/Land Rover $6,295 to $7,500
Kia $4,543 to $7,500
Mercedes $3,501 to $7,500
Mitsubishi $5,836 to $7,500
Nissan $7,500
Porsche $3,667 to $7,500
Subaru $4,502 to $7,500
Tesla No longer eligible
Toyota $2,500 to $7,500
Volkswagen $7,500
Volvo $4,585 to $7,500

Information gathered from U.S Department of Energy

Making the decision to buy an EV

Just as with buying a traditional gas vehicle, deciding to dive into the world of electric vehicle buying requires questioning several factors, such as cost, size and practicality. But buying an EV takes extra consideration. Here are some questions to ask yourself before deciding whether now is a good time to buy an electric vehicle.

  • Is there charging available in my area? Before deciding to purchase an EV, it is important to confirm that there are available charging stations in your area. Use resources like those offered through EVgo to explore options prior to purchasing.
  • What is the vehicle range? You will need to confirm that the range of your new vehicle fits with your typical driving routine — and any trips you might be planning.
  • What is the expected vehicle maintenance? While you will need to set aside some separate cash for service checks, you won’t have to worry about costs from oil changes or other emissions equipment.
  • How much is EV insurance? The cost of EV insurance ranges so best to research and determine which lender fits best with your needs. Check out Bankrate’s guide to electric vehicle insurance.
  • Should I lease an EV? Consider leasing over buying if you are able to find beneficial manufacturer incentives or if you prefer to change your vehicle every few years.
  • Should I buy new or used? Similar to leasing versus purchasing, consider available incentives in terms of the year of the vehicles available in your budget.

The future of EV tax credits

Electric vehicles are still some of the most expensive cars on the market, and until more are produced, they will predictably stay at a steeper price point. But because manufacturers are making green vehicles a priority, and the government is looking to reward that, the tax credit likely won’t be disappearing anytime soon. And if you have been interested in going green for a while, now might be a good time to act. 

This is especially true following President Biden’s August 2021 executive order stating that half of all new vehicles sold in the U.S. should be electric by 2030. While that is quite a steep percentage jump from today, you may be able to take advantage of the current surge of electric car options and save extra money through an available tax credit.

There may be more tax credits on the way. The 2022 Inflation Reduction Act passed in the House and Senate and will soon be signed into law. Initial reports suggest that additional tax credits will be available to those who purchase EVs under the new legislation.

2022 Inflation Reduction Act

Following months of deliberation, the 755-page Inflation Reduction Act passed and was signed into law by President Biden on Aug. 16. It carries the intent to “fight inflation, invest in domestic energy production and manufacturing and reduce carbon emissions by roughly 40 percent by 2030,” according to a statement from democrats.gov. The new legislation will likely affect tens of millions of Americans and encourage more drivers to buy electric and reduce carbon emissions.

The part of the legislation on clean vehicles indicates that the same $7,500 tax credit will be offered to those who purchase an EV, but stricter laws regarding the vehicle components may make finding a qualifying EV challenging. The incentive can essentially be split into two parts, the minerals used in the battery components.

To qualify for the first $3,750, a certain percentage of the critical minerals used in the battery must be extracted from the U.S. or a country that the U.S. shares a free trade agreement with. The second half of the $7,500 considers where the battery components come from. To qualify for the maximum tax credit allowance, most of the battery components must be made in the U.S., Canada or Mexico. The required percentages will increase each year from 2024 to 2026 in the case of critical minerals, and 2028 in the case of components.

While this creates a challenge, many manufacturers that no longer offer incentives, like Tesla and GM, will be able to resume. The legislation removes the limit on the number of EVs sold. Previously, manufacturers that sold 200,000 vehicles would no longer be eligible to offer credit. But in order to qualify the vehicles must be assembled in North America.

The bottom line

If the time to purchase a new set of wheels is upon you, consider buying an electric vehicle to help address climate change and benefit from EV tax credits and incentives. Before deciding on a particular EV, do your homework and investigate whether there are tax credits still available.  

It’s also important to look into the availability of charging stations in your area and, depending on how you plan to use the vehicle, confirm the battery range of the EV you’re interested in. 

When it comes time to find financing and insurance be sure to compare rates and differing costs for buying EV over traditional. 

Written by
Rebecca Betterton
Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ins and outs of securely borrowing money to purchase a car.
Edited by
Auto loans editor