These Cars Qualify for a $7500 Federal Tax Credit

Nearly every major car manufacturer now o ers electric vehicles or at least hybrid versions of their bestselling cars. When gas prices surged in 2023, there was a rush on EVs, and many people were put on a waiting list for months.

Gas prices have stabilized and EV sales have slowed, with many sitting on dealer lots, which tends to lead to discounts. More hybrid cars are also being introduced, and people enjoy the combination of electric power and traditional internal combustion motors. At the very least, it all but eliminates range anxiety. And then, there are tax credits to consider.

How tax credits work

The government has been subsidizing the production and sale of EVs and plug-in hybrids for quite some time. Up to $7,500 can be applied, depending on factors such as the price of your car and your income.

Tax credits are nonrefundable and can only be applied to the taxes you owe in the year that you took delivery of the vehicle. So, if you bought a qualifying vehicle in 2023, you will not see any benefits until you file your taxes in 2024.

After you file your taxes, you need to fill out Form 8936, Clean Vehicle Credits with your tax return. You will also need to provide your vehicle's VIN. You will not see any of that credit before then, and the credit only applies to taxes you owe.

For example, if you owe $9,000 in taxes and you qualify for a $7,500 EV credit, your taxes would amount to $1,500. You can also apply the refund to the following tax year.

Don’t think you’ll get money back if your EV tax credit exceeds the taxes you owe. Let’s say you owe $5,000 in taxes but qualified for a $7,500 EV tax credit. You will receive a $5,000 credit towards your taxes.

Credit upfront

Changes in regulation now allow you apply the EV tax credit at the time of sale. Beginning in 2024, you can transfer the credit and receive the full amount towards the vehicle purchase regardless of how much you owe in taxes.

This credit can be applied towards your down payment or towards reducing the overall price of the car, which will lower your monthly payments.

The dealer must be registered with the IRS, which tracks the vehicle sales to determine which ones are eligible and for how much.

You will still have to file Form 8936 with your tax return. Note that changes in your income during the year you bought the vehicle with the applied credit could make it so you will have to pay back that credit. A big raise or promotion are some examples of changes in income that may affect your tax benefit.