Why You Might Miss Out on Federal EV Tax Credits in 2024

Here's what the new eligibility requirements mean.

Christian Gilbertsen | 

May 24, 2024 | 4 min read

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In the quest to spur the adoption of electric vehicles, the federal government has subsidized the sale of EVs for more than a decade. Consumers who purchase a new EV may be able to receive a tax credit of up to $7,500, but the rules regarding who and what kinds of cars are eligible for such a credit are more complex than they used to be.

The purchaser's modified adjusted gross income (AGI) as well as the price of the EV, its final assembly location, and the source of its battery components and critical materials all factor into the eligibility equation now. And as of January 1, 2024, a new "foreign entity of concern" clause took effect, further limiting the pool of qualifying vehicles.

The Feds Care About Battery Size, Vehicle Weight, and the Assembly Location

For a new EV to qualify for the federal incentive, its battery capacity must meet or exceed 7 kilowatt-hours of capacity, its gross vehicle weight rating must be lower than 14,000 pounds, and its final assembly must take place in North America.

Pricey EVs Do Not Qualify

If you're looking to buy a new electric SUV, truck, or van, its manufacturer's suggested retail price — which includes factory options but excludes the destination fee and dealer-installed accessories — can be no more than $80,000. Sedans and other passenger cars may not exceed $55,000.

There's an Income Cap

Your modified AGI may also dictate your eligibility. For married couples filing jointly, their AGI must be lower than $300,000. The cap is $225,000 for heads of households and $150,000 for all others.

Battery Sourcing Matters

The government wants to incentivize domestic manufacturing and has therefore set a limit on how much of an EV's battery components and materials can come from (or be processed in) other countries. For 2024, 60% of the value of the battery's components must be made or assembled in North America for the vehicle to qualify for $3,750, or half of the $7,500 total.

For EV buyers to get the other half of the credit, 50% of the value of the battery's critical minerals must be processed or extracted from the U.S. — or a country engaged in free trade with the U.S. — or be recycled in North America. In 2023, those percentages were 50% and 40%, respectively.

What's more, starting this year, if the vehicle's battery components are made or assembled by a foreign entity of concern such as China, Russia, Iran, or North Korea, the EV will not qualify for the credit. Automakers can continue to source critical minerals for the battery from such places without affecting a vehicle's eligibility, but only for another year.

Used EVs Have Different Incentive Requirements

The component-sourcing requirement has knocked several new vehicles off the tax credit-eligible list. If you're looking for more choice, buying a pre-owned model could be a viable alternative, as used EVs less than $25,000 may qualify for a credit of up to $4,000.

To redeem it, though, you can't be the original owner of the vehicle, nor can you have claimed a used-EV credit within the last three years. You must also meet some income restrictions. Married couples filing jointly must have an AGI below $150,000. For heads of households, the maximum is $112,500, and for all others, it's $75,000.

The Same Restrictions Don't Apply to Leasing Companies

Currently, the IRS considers leased EVs to be commercial vehicles, which are exempt from the aforementioned final-assembly, battery-sourcing, and vehicle-pricing requirements. That means a leasing company — for instance, an automaker's finance department — can take advantage of the full $7,500 credit on a much wider range of electric vehicles.

The leasing company may decide to pass those savings onto you as the lessee. Because you wouldn't be the one claiming the tax credit, your AGI does not matter in this instance. That said, dealerships aren't required to do this, so speak up when negotiating your lease terms.