January 30, 2024

2024 EV Tax Credit Requirement Updates - What You Need to Know Now

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9 Min. Read

There has been a notable surge in the interest and adoption of electric vehicles (EVs) both in the United States and around the world over the past several years. This growing trend of electrification and eMobility aligns with the global initiative by many countries to combat climate change and enhance their sustainability efforts.

Governments around the world are actively moving to propel the electrification movement forward by introducing initiatives focused on EVs and EV charger installations. A significant milestone in this journey for the U.S. is the Inflation Reduction Act of 2022, which brought about substantial changes to the existing EV tax credit, aiming to make this incentive more accessible and contribute to a more ethical supply chain.

But as the technology advances and adoption rates continue to climb, it’s important to adjust the initiative to continue meeting the needs of potential EV drivers and owners. As of January 1st, 2024, pivotal adjustments have come into effect, such as now allowing buyers the option to transfer the EV tax credit directly to the dealership.

In this article we’ll explore the updated EV tax credit system, including discussing the new qualifications and requirements, and the impact they are expected to have on the ever-expanding landscape of electric vehicle adoption.

Understanding the Updated EV Tax Credit System

The Inflation Reduction Act made major steps in updating existing support for driving electric, including adding and expanding incentives for EV charger installation and EV purchasing, and had set milestones for achieving greater sustainability and a boost to the American economy since it’s inception. This includes year-by-year changes as the act continues to drive toward a net-zero emissions future and achieve U.S. climate goals.

As the landscape of electric vehicles and EV charging continues to change, it’s important that EV and EV charger installation incentives continue to align with long-term goals for government sustainability initiatives, while also meeting the needs of EV drivers and prospective EV buyers.

So what’s changing in 2024?

The New EV Tax Credit Requirement

As of January 2024, new sourcing requirements are now in effect to help build a more ethical supply chain. With vehicles using minerals sourced from foreign entities of concern no longer meeting the full EV tax credit requirement, this move is helping to revitalize the American economy and is already creating new work opportunities in the U.S. This new measure will broadly impact manufacturers sourcing materials from China while supporting the North American mining industry.

This new rule follows the January 2023 update regarding battery capacity and the March 2023 update stating that vehicles must be assembled in North America to qualify.

While some EVs currently being sold in the U.S. that would have previously qualified for the incentives are no longer eligible under these new requirements, many auto manufacturers and other energy transition companies have shifted their strategy to build new production and manufacturing plants in the United States as a result of this requirement. As a result, EVs that may no longer be eligible today may soon become eligible in the future as U.S. manufacturing continues to take off and these companies invest in the U.S. economy of electric vehicles and electrification.

Incentives at the Dealership

Prior to January 2024, buyers would claim the EV credit when filing their taxes. Depending on the time of their EV purchase, it could take up to a year to obtain the credit. Plus, the non-refundable nature of the credit meant buyers who owed less than $7,500 in taxes couldn’t take full advantage of this incentive.

The new “cash on the hood” rule makes the EV tax credit more accessible by allowing buyers to transfer the credit to the dealership and receive the incentive during when purchasing their electric vehicle.

The dealership can then issue an immediate discount on the vehicle’s price or hand out cash to the buyer at the time of the purchase. This approach takes the complexity out of applying for the tax credit and makes EVs more accessible than ever since buyers can use this credit as a down payment and toward the immediate expense of their electric vehicle.

Experts believe this updated rule will have a significant impact on EV adoption, and for EV drivers, this can help boost the accessibility and immediate cost-savings of driving electric.

Navigating the EV Tax Credit Requirement

The IRS regulates EV tax credits under two sections of the tax code, titled 30D for new EVs and 25E for used electric vehicles, which have their own incentives and qualification requirements.

Even though the “cash on the hood” update streamlines the application process for EV buyers, it’s still important to fully understand how the credit works and which eligibility criteria you must meet to qualify for the full credit.

Eligibility Criteria for the Tax Credit

Simply put, in order to meet the EV tax credit requirement, you’ll need to purchase from a qualified dealer, pick an eligible vehicle, and not exceed the income limit set by the IRS.

Here are some key things to keep in mind when considering your EV purchase and ensuring you meet all requirements to qualify for the incentive.

Buying from a Qualified Dealer

The “cash on the hood” rule means that dealers who participate in this will have to submit sales reports to the IRS to claim the credit on behalf of the buyer. To qualify, dealers must sell eligible EVs and register on a website managed by the IRS.

So far, over 8,700 dealers have registered, and this number is quickly growing. As an EV buyer, even if you can’t find a local dealer who has registered for the “cash on the hood” program, you can still claim the tax credit yourself on your taxes if the EV you purchase meets all eligibility requirements on materials sourcing and manufacturing.

Choosing a Qualified EV

Even with new incentives available at the point of purchase, not all EVs will qualify for the full tax credit, including some EVs that may have qualified in prior years due to updated regulations on electric vehicle material sourcing and manufacturing. Vehicles must meet a mix of eligibility requirements based on performance, sourcing, assembly, weight, and pricing.

To meet the full EV incentive and tax credit requirements, electric vehicles must not weigh more than 14,000 lbs., must have a battery capacity of 7kwh or more, and are required to be assembled in North America.

Besides these requirements, half the value of the battery components must be produced or assembled in North America, and at least 40% of the minerals used must be sourced from the U.S. or a country with a free trade agreement. If a vehicle only meets one of these criteria, you can still qualify for up to a $3,750 credit, so long as all other conditions are met.

As of January 2024, a total of 19 EVs in the market qualify for the credit, but future lineups will increase this number as manufacturers take steps to build a more sustainable and ethical supply chains in North America—something we are already seeing take place as auto makers and battery manufacturers funnel billions of dollars into building production plants in the U.S.

Income Limit Considerations

In addition to having vehicle requirements to qualify for these incentives, not everyone will qualify for the EV tax credit based on their income.

To qualify for the new EV tax credit, your annual gross income (AGI), or income prior to any taxes or deductions, must not exceed $300,000 for married couples filing jointly, $225,000 if you file as head of household, and $150,000 for other tax-filing scenarios.

If you are purchasing a used EV, your AGI must not exceed $150,000 for married couples filing jointly, $112,500 if you file as head of household, and $75,000 for any other tax-filing scenarios.

Additional Considerations About EV Tax Credits

If you’re in the market for your first EV or are currently considering getting a second electric vehicle, there are a few additional considerations to keep in mind.

Repaying the Credit

The Federal Trade Commission has a three-day “cooling-off” rule that gives consumers the possibility to return a vehicle they purchased. Most states have similar laws that extend the return window to 30 days or more, so be sure to check the laws within your state to see what options are available where you live.

If you return an electric vehicle after receiving a discount or cash under the “cash on the hood” rule, you’ll have to repay the credit. You will also have to repay the credit if you resell the EV immediately or even shortly after purchasing it.

Used EV Tax Credit Requirement

The “cash on the hood” update applies to rule 25E for used electric vehicles, but the EV tax credit requirement is different.

The used EV credit has a limit of $4,000 or 30% of the vehicle’s value, depending on which one is greater. Plus, the purchase price can’t exceed $25,000, and the EV has to be at least two years old. If the original buyer claimed a 30D credit when the vehicle was new, you’ll have to wait at least a year before the vehicle becomes eligible for a 25E credit as a used EV.

However, the rules regarding battery materials and assembly are less strict, which means that a broader range of EV makes and models qualify for the 25E credit.

Leasing vs. Buying EVs

Because a leased vehicle is considered to be a commercial vehicle, the rules for claiming the EV tax credit are looser and more models qualify, but the tax credit goes to the lessor rather than the lessee.

With 37% of EVs being leased, leasing could become an even more popular option as dealerships pass on savings to the consumer and offer competitive lease terms on a wider range of EV models.

However, there is no guarantee that lessors will pass on these savings, and the benefits of leasing an electric vehicle compared to outright buying an EV will likely vary from one dealership to another.

The Road to EV Ownership

The most recent changes to the EV tax credit requirement facilitate access to this incentive, but the rules remain complex. It’s crucial to thoroughly understand the eligibility criteria before shopping around for an EV and making your purchase.

You should also explore additional incentives available at the state and local level to save even more on your EV or at-home charging equipment and EV charger installation project.

There’s a reason why over 80% of EV charging happens at home, and with the cost savings and convenience of waking up with a full charge, installing an EV charger at home just makes sense. But finding a qualified electrician who has experience with EV charger installation can be tough—especially when trying to navigate the safety requirements that EV charging equipment needs. Qmerit can help.

If you’re considering an EV purchase, Qmerit will work with you to explore at-home EV charging options that work for your home and best meet your charging needs. Thanks to our nationwide network of certified installers, we have helped over 269,000 EV owners achieve their electrification goals with reliable EV charger installations.

And with Qmerit, you can rest easy in knowing that your EV investment, and your home, are safe. All Qmerit-certified installers are licensed, insured, vetted, background-checked, and trained in EV charger installation, so you never have to worry about an improper installation.

Get in touch with us to learn more about EV ownership and at-home EV charging!

Author: Greg Sowder Greg Sowder President, Qmerit Network