Electric Vehicle Tax Credits and Rebates Explained
The quality of electric cars has improved greatly in recent years. And because the cost of lithium-ion batteries has fallen so much, we now have several affordable choices. The federal tax credit can cut your costs by up to $7,500. With these incentives, many electric car models cost much less than the average new car in America.
Plug-in electric vehicles and fuel cell vehicles qualify for a federal income tax credit of up to $7,500. The federal tax credit was altered as of August 16, 2022, when President Biden signed the Inflation Reduction Act (IRA) into law. Below you will find an explainer of the federal tax credit from January 2023 onwards. If you'd like to skip to list of cars that are eligible for the federal tax credit, go to the Department of Energy's Fuel Economy website.
Requirements as of January 1, 2023
The new federal tax credit (now known as the Clean Vehicle Credit) from the IRA went into effect on January 1, 2023 and is valid through 2032. The changes are vast and complicated, so please read the below carefully before considering your next electric vehicle purchase.
Special Circumstances: January 1, 2023 - April 17, 2023
The IRA adds new requirements for the Clean Vehicle Credit, which we discuss in more detail below. However, one key piece of those requirements - concerning the battery components and minerals - was delayed, which means vehicles were eligible for the federal tax credit, in this time period, but not necessarily later in 2023, and vice versa. In December 2022, the U.S. Treasury Department said it will delay guidance on the required sourcing of electric vehicles batteries until March 2023. The guidance has been updated and the special circumstances time period ended April 17, 2023.
What does this mean? For this short time period, certain electric vehicles, that have their final assembly done in North America, qualified for the Clean Vehicle Tax Credit regardless of the battery constraints mentioned below. However, all other conditions (mentioned below) must be met in order for the consumer to receive the tax credit.
Note, according to the IRS "vehicles ordered or purchased prior to but placed in service after Treasury and the IRS issue guidance will be subject to the critical mineral and battery component requirements." Meaning, if the vehicle you purchased only qualifies for the federal tax credit during this window of time from January 1, 2023, until April 17, 2023, your vehicle needs to be in your possession (aka in service) in order to receive the tax credit.
The other changes to the federal tax credit made by the Inflation Reduction Act are below.
No More Manufacturer Cap
Previously, the federal tax credit was phased out for manufacturers that had sold 200,000 EVs within the United States. The new Clean Vehicle Credit removes that cap.
New Income Requirements
As of 2023, there are now income caps to qualify for the Clean Vehicle Credit. The below are the modified adjusted gross income (AGI) limits:
- Joint filers must have an income of $300,000 or less.
- Heads of household must have an income of $225,000 or less.
- Individual filers must have an income of $150,000 or less.
You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your AGI is below the threshold in one of the two years, you can claim the credit.
Limit to Tax Credit Claims
Individuals can only apply for the federal tax credit once every three years.
New Vehicle Requirements
In order to qualify for the federal tax incentive, the vehicles will have to (a) be assembled in North America, (b) meet manufactured suggested retail price (MSRP) cap requirements, and (c) meet complicated battery requirements, which will ramp-up and change over time.
A vehicle may not exceed a certain MSRP cap in order to qualify for the federal tax credit:
- Sedans & hatchbacks - $55,000
- SUVs, pick-up trucks, & vans - $80,000
To be clear, if you are looking for a sedan and it has an MSRP of $52,000, but the dealer sells you the car for $57,000, you still qualify for the federal tax credit because it's based on MSRP, not final purchase price.
The IRS has a list of qualified manufacturers that have vehicles that are currently eligible for a credit provided all other requirements are met.
Consumers will also need to run the vehicle identification number (VIN) through this IRS tool to make sure the specific vehicle they're purchasing qualifies for the tax credit.
The new battery requirements fall into two buckets: critical minerals and battery components.
- Critical Minerals
- Starting 2023, 40% of the battery's minerals (by value) must be mined OR processed in North America, or a country with a free trade agreement with the US or recycled in the US. This percentage will ramp-up over time (see table below).
- If a vehicle meets this requirement, it qualifies for $3,750 of the federal tax credit.
- Battery Components
- Starting 2023, 50% of the value of battery components must be manufactured OR assembled in North America. This percentage will ramp-up over time, see table below.
- If a vehicle meets this requirement, it qualifies for $3,750 of the federal tax credit.
- If a vehicle meets BOTH battery requirements, it qualifies for the full $7,500 federal tax credit.
|Critical mineral %||40%||50%||60%||70%||80%||80%||80%||80%||80%||80%|
|Battery component %||50%||60%||60%||70%||80%||90%||100%||100%||100%||100%|
The list of vehicles that meet these requirements is ever-changing and can be found here.
In addition, there is another battery sourcing provision: the "foreign entities of concern" component. Starting in 2024, to qualify for the federal tax credit, vehicles cannot have any battery components from a foreign entity of concern (i.e. Russia and China). Starting in 2025, batteries cannot have any critical minerals from a foreign entity of concern to qualify.
Starting in 2023, used electric vehicles qualify for the federal tax credit for the first time! Here are the fast facts prospective buyers need to know.
- There are no battery sourcing requirements for used vehicles.
- Buyers can expect a tax credit of $4,000 or 30% of sales price, whichever is lower.
- The car must be bought from a dealership and be at least 2 years old.
- The cost of the car cannot exceed $25,000.
- The used car tax credit can only be on the first resale of a vehicle.
- The income threshold to qualify is $150,000 for joint filers and $75,000 for a single filer.
2024 and beyond
Starting on January 1, 2024, consumers have the choice to apply for the tax credit during their yearly taxes OR choose to transfer the clean vehicle credits to qualified sellers (car dealerships) at the time of sale and use the credit amount as a downpayment or a reduction of the manufacturer's suggested retail price (MSRP). Dealers interested in offering the credit at the point of sale must register with the IRS, and buyers must confirm that they meet the tax credit’s income limit. Buyers can then choose to receive cash or apply the credit toward the cost of the EV. If a buyer’s income exceeds the limit, they will need to repay the credit to the IRS when they file their taxes. As an important note, your personal tax liability is not a factor if you choose to transfer the clean vehicle credits to a qualified dealer. Your personal tax liability is a factor if you buy from a non-IRS registered dealer and claim the credit on your yearly taxes.
If your vehicle of choice no longer qualifies for the Clean Vehicle Credit, you may want to consider leasing. The IRA set up the Commercial Vehicle Tax Credit that does not have all the complicated requirements of the individual vehicle/Clean Vehicle Credit. That means that a manufacturer can sell a vehicle to a dealership and that dealership can then take advantage of the federal tax credit. Many are deciding to pass on the savings to consumers in the form of lower monthly payments.
How do I start the buying process?
We update our Drive Green shopping portal so you can find out - in one place! - what the federal tax credit and state rebate is for any vehicle in Rhode Island and Massachusetts. Click here to start shopping!
Edmunds Guide for Federal Tax Incentives
If you have more questions about federal tax credits, we recommend the Edmunds Guide. They have the most up-to-date information about which cars qualify, the maximum incentive you can receive for each car, and the up-to-date changes the Inflation Reduction Act will make to the federal tax credit over time.
The Massachusetts Offers Rebates for Electric Vehicles (MOR-EV) program is for Massachusetts residents only. The MOR-EV rebate program is now divided into three buckets MOR-EV Standard, MOR-EV Used Vehicle, and MOR-EV+. Note that MOR-EV+ can be combined with MOR-EV Standard and MOR-EV Used Vehicle.
MOR-EV Standard is a $3,500 rebate for the purchase of all-electric vehicles or fuel cell vehicles. When applicable, MOR-EV Standard can be combined with MOR-EV+. MOR-EV Standard program details are as follows:
- Battery Electric Vehicles (BEVs) and fuel cell electric vehicles (FCEVs) with total MSRP under $55,000 are eligible for a $3,500 rebate.
- You must be a resident of MA, or a business or non-profit organization located and licensed to operate in MA.
- Massachusetts residents can purchase/lease a vehicle inside or outside of MA, but the vehicle must be registered in MA within 90 days of purchase/lease.
- MA residents may receive the rebate at point-of-sale with a participating dealership OR apply for the rebate on MOR-EV's website within 90 days of purchase.
- Purchased vehicles must maintain registration with the RMV for a minimum of 36 consecutive months for use in MA.
- Leased vehicles must have least terms of at least 36 months.
MOR-EV Standard Applications Requirements
- Point of sale rebate
- Consumers must verify if they are purchasing/leasing a vehicle from a participating dealership.
- Individuals must bring a copy of a MA driver's license or other valid form of MA residency as approved by the Administrator.
- A copy of the Applicant Terms & Conditions is required to be signed at the dealership for the point-of-sale program (to be provided by dealer).
- A Rebate Transfer Acknowledgement Form is required to be signed at the dealership (to be provided by dealer).
- Rebate after purchase or lease
- Apply online within 90 days of purchase or lease.
- Submit a copy of the MA registration certificate for the car.
- Submit a copy of the final sales or lease contract with an itemization of credits, discounts, and incentives received.
- Submit a copy of a MA driver's license or other valid form of MA residency as approved by the administrator.
MOR-EV Used Vehicle
MOR-EV Used Vehicle is a $3,500 rebate for MA residents. Important details are as follows:
- The car must be purchased at a licensed MA dealership.
- Final purchase price must be $40,000 or less. The final purchase price includes the costs associated with the trim level of the vehicle, but does not incude registration fees, documentation fees, or sales and use taxes.
- Consumers must be part of an income qualifying program. See details here.
- If MA residents, don't participate in an income qualifying program, they can still be eligible for the rebate if their modified adjusted gross income (AGI) doesn't exceed:
- $150,000 for married filing jointly or a surviving spouse.
- $112,500 for heads of households.
- $75,000 for all others.
Important documentation needed for the application process can be found here.
MOR-EV+ is an additional $1,500 rebate that can be combined with MOR-EV Used Vehicle or MOR-EV Standard. Applicants for MOR-EV+ should know:
- Applicants must participate in an income-qualifying assistance program.
- This is not a point-of-sale rebate. Applicants can apply online within 90 days of purchase/lease.
- Eligible residents that purchased/leased a qualifying new or used light-duty EV or fuel-cell electric vehicle on or after November 10, 2022 have until November 6, 2023 to apply for the MOR-EV+ rebate.
Visit the MOR-EV website to learn more and apply.
MOR-EV Trucks is a $7,500 rebate for the purchase of all-electric trucks or fuel cell trucks. When applicable, MOR-EV Standard can be combined with MOR-EV+. MOR-EV Trucks program details are as follows:
- New on-road battery electric or fuel-cell electric pick-up trucks with a GVWR between 6,000 and 10,000 pounds.
- New on-road battery electric or fuel-cell electric vehicles of any body type with a GVWR between 8,5001-10,000 pounds.
- A Maximum MSRP of $80,000
MOR-EV Trucks Applications Requirements
- MOR-EV Pick-Ups and Class 2b rebate recipients must retain ownership of the incentivized vehicle(s) and maintain an active registration with the Massachusetts Registry of Motor Vehicles for a minimum of 36 consecutive months immediately after the vehicle(s) purchase or lease date.
- If a vehicle is leased, lease terms of at least 36 months are required for program eligibility.
- Individual applicants to the MOR-EV Pick-Ups and Class 2b may also be eligible for the MOR-EV+ rebate; contact the Program Administrator directly for more information.
Current eligible vehicles are Ford E-Transit, Ford F-150 Lightning, Rivian R1S, and Rivian R1T.
Visit the MOR-EV website to learn more and apply.
The Driving Rhode Island to Vehicle Electrification (DRIVE EV) program is for Rhode Island residents only. Program details are as follows:
- There are actually three programs: DRIVE EV, DRIVE+, and DRIVE EV FLEET. DRIVE EV is for all RI residents and DRIVE+ provides additional incentives of up to $1,500 for Rhode Islanders who meet certain income requirements. DRIVE EV FLEET is for small businesses, non-profits, and public sector entities, so we won't go into details here, but please feel free to check out the website.
- Qualified applicants will have 120 days from the date of purchase or lease to apply for the rebate program online. The program is first-come, first-served.
- Vehicles must be purchased at licensed RI Automobile Dealership or one of the qualifying MA dealerships (below) and registered in RI. The Office of Energy Resources may make exceptions on a case-by-case basis for dealerships not on the below list. Contact OER for more information. Cars must be purchased or leased on or after August 1, 2023, to qualify for this out-of-state exception.
- First Ford - Fall River, MA
- VW of North Attleboro - North Attleborough, MA
- Boch Nissan South - North Attleborough, MA
- Boch Toyota South - North Attleborough, MA
- Patriot Subaru of North Attleboro - North Attleborough, MA
- Kia of Attleboro - Attleboro, MA
- Stateline Subaru - Somerset, MA
- Courtesy Mitsubishi - Attleboro, MA
- Milford Nissan - Milford, MA
- Purchase or lease of a new EV has to have a final sales and purchase price agreement at or below $60,000.
- Purchase or lease of a used EV must have a final sales and purchase price agreement at or below $40,000.
- Here is a breakdown of the rebates.
Visit the DRIVE EV website to learn more and apply.
**Please note, for vehicles purchased or leased before October 3, 2023,the standard rebate remains up to $2,000. For all purchases or leases on or after October 3, 2023, the new standard rebate amount for NEW eligible electric vehicles is up to $1,500.