How Do Electric Car Tax Credits Work in 2024? - Kelley Blue Book (2024)

Quick Facts About Federal Incentives for Electric Cars

• Dealerships now offer instant tax rebates to qualifying customers and vehicles.
• Ford Mustang Mach-E is off the list for tax credits in 2024.
• Tesla Model 3 Rear-Wheel Drive (RWD) and Long Range trims lost their federal EV tax credits.

Consumers considering a new electric vehicle or plug-in hybrid can now obtain instant tax rebates of up to $7,500 on select models. Fewer electric car models qualify when compared to last year, and income guidelines still apply. So, read on to find out if federal tax incentives will help you defray the cost of buying a zero-emission vehicle when combined with state and local rebates.

• How the New EV Tax Credits Work
• List of Electric Vehicles That Qualify
• State and Local Incentives Near You
• Your Electric Utility May Help

How the New EV Tax Credits Work

According to Kelley Blue Book research, electric car buyers spent an average of $50,798 for a new EV purchase in December 2023 (the most recent figures as of this writing), down more than $10,000 since a year ago. The industrywide average, including gas-powered vehicles and electric cars, reached $48,759 in the same time frame.

Here’s how the electric vehicle tax credits work in 2024 (as of this writing):

• Discount upfront. In 2024, dealerships can offer instant EV tax rebates to qualifying customers on qualifying vehicles who can use them as down payments at the time of purchase. According to new IRS regulations, tax credits must be initiated and approved at the time of sale. The regulations also say that buyers must obtain a copy of the IRS’ confirmation that the dealer successfully submitted a “time of sale” report. Read more about IRS publication 5900. See the full list below.
• Credits up to $7,500. The Inflation Reduction Act allows up to $7,500 in tax credits for select new electric cars, plug-in hybrids, and hydrogen-powered vehicles that meet government qualifications. The federal government continues to update the list of qualifying vehicles.
• Caps EV price tags. The incentives restrict qualifying vehicles to low-emissions trucks, SUVs, and vans with manufacturer’s suggested retail prices (MSRPs) of up to $80,000 and cars up to $55,000.
• New electric vehicle income caps. The rebates are limited to individuals reporting adjusted gross incomes of $150,000 or less on taxes, $225,000 for those filing as head of household, and $300,000 for joint filers.

• Used electric vehicle rebate. Anyone considering a used electric car under $25,000 could obtain up to a $4,000 tax credit, subject to income and other limits. The IRS says the credit equals 30% of the sale price up to a maximum credit of $4,000. To qualify, used cars must be at least two model years old. The vehicle also must be purchased at a dealership. The vehicle also only qualifies once in its lifetime. Purchasers of used vehicles can only qualify for one credit every three years, and to qualify, individuals must meet income requirements (see below). The credit ends in 2032. Read about used EV tax credits: Used Electric Car Tax Credits Explained for 2024.

• Leased vehicles may qualify. The IRS lets dealers claim credits of up to $7,500 on cars available for lease. Dealers, in turn, can apply that amount to the price of the vehicle before setting lease terms, effectively lowering the cost to shoppers.
• Rules on EV battery manufacturing. To qualify for the subsidy, electric car batteries must have final assembly in the United States, Canada, or Mexico, and the batteries’ minerals and parts must also come from North America to qualify. These rules render many electric vehicles ineligible. Last year, the U.S. Treasury Department updated regulations that govern where battery minerals and parts must be sourced. Currently, the rules require 60% of battery content from such countries and ladder up to 80% in 2027. The department will use a similar, 3-part test to decide whether cars have met mineral standards. In 2024, 50% of critical minerals must be recycled, sourced, or processed in North America.
• Home electric car chargers and installation costs get a rebate. Federal incentives include a 30% tax credit up to $1,000 for electric car chargers and installation costs. The tax credit extends through Dec. 31, 2032. To claim your credit, use IRS form 8911 and file with your federal tax returns. Some states and utilities also offer separate incentives. Read more on that below.

List of Electric Vehicles That Qualify

The U.S. Internal Revenue Service released its newest list. So far, we know the following updates to the tax credits starting Jan. 1, 2024. As the IRS updates the list of qualifying vehicles, we will update ours.

• Chrysler Pacifica plug-in hybrid will continue to get a $7,500 tax credit in 2024.
• Tesla Model 3 Rear-Wheel Drive (RWD) and Long Range trims no longer qualify for the federal EV tax credits after Dec. 31, 2023.
• Others off the 2024 list include the Ford Mustang Mach-E. Volkswagen ID.4, Cadillac Lyriq, and the Nissan Leaf.
• GM told us the company would halt Bolt EV and EUVproduction at the end of 2023.

State and Local Incentives Near You

Though the federal government’s effort makes up the lion’s share of government EV discounts, some states and local governments offer incentive programs to help new car buyers afford something more efficient. These can be tax credits, rebates, reduced vehicle taxes, single-occupant carpool-lane access stickers, and registration or inspection fee exemptions.

States like California and Connecticut offer broad support for electric vehicle buyers. However, Idaho and Kentucky are among the states offering no support to individual EV buyers.

Your Electric Utility May Help

Lastly, it’s not just governments that can help you with the cost of a new EV. Some local electric utilities provide incentive programs to help buyers get into electric vehicles. After all, they’re among the ones that benefit when you turn your fuel dollars into electricity dollars.

Some offer rebates on cars. Others offer discounts on chargers or install them for free when you sign up for off-peak charging programs.

For example, Rhode Island offers up to $1,500 to residents who purchase or lease a qualified new battery electric vehicle. The state also rebates up to $1,500 more to purchasers who qualify based on income eligibility.

Electric Car Guides:

• Electric Cars 101: Everything You Need to Know
• How Long Does It Take to Charge an Electric Car?
• An EV Charger Buying Guide: See All Your Options
• Electric Car Companies Guide
• Electric Car Range – Everything You Need to Know

Editor’s Note: This article has been updated for accuracy since it was originally published.