EV Tax Credits: Which Electric Vehicles Still Qualify?

Buying an electric vehicle is a major financial decision, but a federal tax credit can make it significantly more affordable. With new regulations in place for 2024, getting up to $7,500 off your next car requires understanding strict battery sourcing rules. Here is a guide to navigating the current requirements and finding the right qualifying vehicle.

The 2024 Battery Sourcing Rules Explained

The federal electric vehicle tax credit offers an incredible opportunity to save money. However, the rules changed dramatically on January 1, 2024. The government introduced strict guidelines regarding where automakers source their battery parts and critical minerals.

To get the full $7,500 discount, an electric vehicle must pass two separate tests. Each test is worth $3,750.

First, a specific percentage of the battery’s critical minerals must be extracted or processed in the United States or a country with a US free trade agreement. Second, a specific percentage of the battery’s physical components must be manufactured or assembled in North America.

The biggest hurdle for 2024 involves the Foreign Entity of Concern rule. If a vehicle’s battery contains components manufactured or assembled by a company located in China, Russia, North Korea, or Iran, the car is completely disqualified from the tax credit. This rule knocked popular cars like the Nissan Leaf and the Ford Mustang Mach-E off the eligibility list earlier this year.

Price Caps and Income Limits

Even if a car passes the battery tests, you and the vehicle must meet specific financial criteria to claim the credit.

Vehicle Price Limits:

  • The Manufacturer Suggested Retail Price (MSRP) cannot exceed $55,000 for sedans, wagons, and hatchbacks.
  • The MSRP cannot exceed $80,000 for SUVs, pickup trucks, and vans.

Your Income Limits: To qualify, your Modified Adjusted Gross Income (MAGI) must be below certain thresholds.

  • Single filers: $150,000
  • Head of household: $225,000
  • Married filing jointly: $300,000

If your current income is too high, the IRS allows you to use your MAGI from the previous tax year to see if you qualify under the older numbers.

Vehicles That Qualify for the Full $7,500

Due to the strict battery sourcing requirements, the list of vehicles eligible for the full $7,500 credit is smaller than in previous years. As of mid-2024, the following popular models meet the criteria:

  • Tesla Model Y: The Rear-Wheel Drive, Long Range, and Performance trims all qualify. The Model Y falls securely under the $80,000 SUV price cap.
  • Tesla Model 3: The Performance and Long Range trims currently qualify. The base Rear-Wheel Drive model uses battery cells from China, meaning it does not qualify for the federal credit.
  • Chevrolet Bolt EV and EUV: These budget-friendly options qualify for the full credit. With a starting price under $30,000, the credit makes them some of the most affordable electric vehicles on the market.
  • Honda Prologue: Honda partnered with General Motors to build this SUV. This partnership allows the Prologue to benefit from GM’s compliant battery supply chain.
  • Acura ZDX: Like the Prologue, this luxury SUV uses GM battery architecture and qualifies for the full credit. Just ensure the specific trim you choose stays under the $80,000 cap.
  • Chrysler Pacifica Plug-in Hybrid: This is currently the only minivan that qualifies for the full $7,500 credit.
  • Ford F-150 Lightning: The Standard Range and Extended Range battery models qualify. You must ensure the trim level you choose stays under the $80,000 truck limit. The high-end Platinum trim is simply too expensive to qualify.
  • Volkswagen ID.4: Certain 2023 and 2024 models qualify for the full credit, specifically those built with SK On battery components in Tennessee.

Vehicles Qualifying for a Partial $3,750 Credit

Some vehicles meet one of the two battery requirements but fail the other. These cars are eligible for a partial credit of $3,750.

  • Rivian R1S and R1T: These premium electric trucks and SUVs qualify for the partial credit, but buyers must be careful. Many Rivian configurations easily exceed the $80,000 price limit.
  • Jeep Grand Cherokee 4xe and Wrangler 4xe: These rugged plug-in hybrid models from Jeep qualify for the $3,750 discount.
  • Ford Escape Plug-in Hybrid: This compact hybrid SUV qualifies for the partial credit and safely slides under the strict price limits.

The Point-of-Sale Discount Advantage

The most exciting change for car buyers in 2024 is how the credit is applied. In the past, you had to claim the EV tax credit on your federal tax return and wait months for your refund check.

Now, you can transfer the credit directly to a registered dealership at the point of sale. The dealer will instantly lower the purchase price of the car by up to $7,500. This acts as an immediate down payment. It lowers your total loan amount and saves you money on interest over the life of your car loan.

The Leasing Loophole

If the car you want does not qualify for the $7,500 credit due to battery rules or price caps, you might still get the discount by leasing.

A specific IRS rule classifies leased electric vehicles as commercial vehicles. Commercial vehicles do not have to follow the strict North American battery sourcing rules or the MSRP limits. Automakers like Hyundai, Kia, and Polestar frequently pass this $7,500 commercial credit onto the consumer in the form of a lease discount. This means you can get a $7,500 discount on a Hyundai Ioniq 5 lease, even though buying the car outright would yield a $0 tax credit.

Frequently Asked Questions

How do I claim the tax credit at the dealership? You need to buy from a dealership that has registered with the IRS Energy Credits Online portal. When you purchase the car, the dealer will submit your information to the portal, and the IRS will confirm your eligibility in real time. You will then sign a document transferring the credit to the dealer in exchange for the instant discount.

Do used electric vehicles qualify for a tax credit? Yes. You can get a tax credit of up to $4,000 on a used EV. However, the used car must cost $25,000 or less, and it must be purchased from a licensed dealer. The income limits are also lower for used EVs ($75,000 for single filers and $150,000 for married couples filing jointly).

What happens if I take the point-of-sale discount but my income ends up being too high? If you receive the $7,500 instant discount at the dealership but your actual income for the year exceeds the strict IRS limits, you will have to pay the $7,500 back when you file your taxes the following spring.