Now, individuals can receive a tax break for purchasing a new electric vehicle without having to wait until they file their annual tax returns.
In 2024, the federal government introduced a new clean vehicle tax credit that can be applied as a point-of-sale discount of up to $7,500 at car dealerships.
Participating dealers have the option to provide eligible consumers with an instant reduction in the purchase price of an EV. This could be done through a partial payment or down payment on the vehicle, or even a cash payment to the buyers.
Used EV models also come with an upfront price discount for buyers. The tax break for a “previously owned clean vehicle” can be as high as $4,000.
Before January, car buyers had to wait until tax season the year following their purchase to claim these tax credits.
In addition to the delay, consumers faced an extra financial challenge by having to wait until tax season. This is because the total value of their EV tax credit could not exceed their annual tax liability, as the credit is considered “nonrefundable.”
That resulted in a situation where numerous consumers, particularly those with lower incomes and smaller tax bills, were unable to meet the requirements for the complete $7,500.
Now, car dealers have the opportunity to transfer the full value of the credit to buyers, regardless of their tax liability, as long as they meet the other eligibility criteria.
New Criteria, Limited Eligibility, and Leasing Opportunities
According to the U.S. Department of Treasury, in 2022 and 2023, EVs eligible for the $7,500 federal tax credit had to meet specific criteria regarding the sourcing of “critical minerals” and battery components in North America.
However, starting on January 1st, 2024, the requirements for eligibility for the $7,500 federal tax credit shifted to include 50 percent of critical minerals and 60 percent of battery components.
As a result, there has been a decrease in the number of electric vehicles that are eligible for the $7,500 federal tax credit in 2024 compared to the previous year.
Nevertheless, the new regulations will only affect electric vehicles manufactured in 2024 and beyond. It is still possible to qualify for the EV federal tax credit based on the previous criteria if you registered your new electric vehicle prior to January 1st, 2024.
Currently, there are only four 2024 EV models that are eligible for the full $7,500 federal tax credit. These models include the Tesla Model Y, Model 3, Model X, and F-150 Lightning. However, for those purchasing a new electric vehicle last year, there were a total of 14 electric cars available that qualified for the full federal tax credit.
Naturally, it is anticipated that an increasing number of electric vehicles will meet the criteria for the $7,500 tax credit in the coming months, as more car manufacturers adapt to the updated regulations.
However, for those seeking an electric vehicle that has not yet met the qualifications and are looking to be cost-effective, leasing an electric car may be a viable option to explore. Indeed, if you’re leasing an EV, it may qualify for the complete tax credit, without any price restrictions.
The government is also offering subsidies to bolster the charging infrastructure and incentivize greater adoption of EVs.
