Important: The guidance on this page is for vehicles delivered on or after January 1, 2024. For guidance on other time frames, visit our federal EV tax credit hub.
As of Oct. 6, 2023, all information about the federal tax credit (also called the federal tax incentive) from 2023 applies with the exception of the information below. To check to see if a vehicle is eligible or if your income qualifies you for the tax credit, please read our most recent 2023 Federal Tax Credit page.
Transferability
Transferability of the New Clean Vehicle Tax Credit (30D) and Used Clean Vehicle Tax Credit (25E) go into effect on Jan.1, 2024.
- The dealer or seller will provide the full amount of the tax credit to the purchaser (YOU!) at the time of sale. This money can be used as a down payment on the vehicle or to reduce the amount of the vehicle price.
- The buyer (YOU!) is STILL responsible for making sure that you meet the income limits. Your Modified Adjusted Gross Income (MAGI) must fall under the threshold amounts either the year you take possession of your EV, or the previous year. If your income exceeds the limits for both years, you will have to pay the full amount of the tax credit back to the IRS.
- You do not need to have tax liability to receive the full amount of the tax credit that your electric vehicle is eligible for if you transfer your tax credit to the dealer. That means if you only owe $2,000 in taxes and you are transferring the $4,000 used clean vehicle tax credit, you get the full $4,000 as cash up front or off the price of the car.
- You still have to file your tax return, and file Form 8936 and include the Vehicle Identification Number (VIN) on the form.
- You do not need to transfer your tax credit to the dealer and take the money up front. If you’d prefer, you can wait until you file your taxes and claim the tax credit then.
- Here is how the process works: If you transfer your tax credit to the dealer, at the time of the sale, the dealer must disclose the Manufacturer Suggested Retail Price (MSRP) of the EV, the full value of the tax credit allowed, and any other incentives available for the purchase of the vehicle. The dealer must also pay you for the full value of the tax credit, either in cash or as a partial payment or down payment on the vehicle.
- A vehicle that is eligible for the new clean vehicle tax credit can also be eligible for the used clean vehicle tax credit as a used vehicle.
- You must hold on to your vehicle for 30 days after purchase to demonstrate that you didn’t purchase the vehicle with an intent to resell the vehicle.
- Each taxpayer can transfer two tax credits per year. This can be two new clean vehicle tax credits, OR one new clean vehicle tax credit and one used clean vehicle tax credit. In the case of those filing joint returns, each person may transfer two tax credits per year as described in the last sentence. So, a household filing jointly can transfer up to four clean vehicle tax credits each year. That’s a lot of EVs!
- The transferable tax credit applies if you buy a vehicle from a direct-to-consumer manufacturer such as Tesla, Rivian, or Lucid. The definition of “dealer” in the statute is just that they are licensed in a state or territory to sell vehicles. The new guidance goes further to state, “To allow for flexibility, especially in the case of direct-to-consumer sales, the proposed definition of dealer includes a dealer licensed in any jurisdiction described in section 30D(g) (other than one exclusively licensed in a U.S. territory) that makes sales in jurisdictions in which it may not be licensed.” If you meet the buyer income limits and the vehicle meets the tax credit requirements, you can purchase from a direct-sales EV manufacturer (online, if necessary) and receive the tax credit upfront.
Specific to Used Clean Vehicles
- The used clean vehicle tax credit may only be claimed by one taxpayer per vehicle.
- The used clean vehicle tax credit is limited to vehicles in which the sale price is less than $25,000. The total sale price includes any delivery charges and is calculated after any other incentives, but excludes taxes and fees required by law. The total sales price does not include separate financing, extended warranties, insurance, or maintenance service charges.
- A used clean vehicle with a branded title or salvaged title could still be eligible for the used clean vehicle credit.
- This is a proposed rule. After considering public comments, Treasury and the IRS will issue final rules.
- More information can be found from the IRS or from the Federal Register
Should I wait until 2024 to buy an EV?
It depends. While being able to transfer the tax credit will make it much easier to use and will make the tax credit available to lower-income drivers, there are other factors to consider.
One of the other provisions of the new clean vehicle tax credit is that starting the same day the tax credit becomes transferable, vehicles with battery components manufactured or assembled by a foreign entity of concern are not eligible for the tax credit. Several automakers have indicated that this rule may make their EVs ineligible for the new clean vehicle tax credit in 2024.
If you are looking to buy a used EV and don’t pay enough in taxes to cover the full $4,000 tax credit, you may get more money in 2024. Plus, you won’t have to finance as much of the cost of the car, which will reduce your monthly payments.
Overall, if you are looking to buy a new clean vehicle, buy now and file for the tax credit next year. If you don’t have much tax liability and are looking to buy a used clean vehicle, it may make sense to wait until January.
