The Internal Revenue Service (IRS) offers tax credits to owners and manufacturers of certain plug-in electric drive motor vehicles, including passenger vehicles, light trucks, and two-wheeled vehicles. Taxpayers who own vehicles that qualify may file Form 8936 with their income taxes to claim the tax credit.
- Internal Revenue Code 30D(a) determines electric drive motor vehicle tax credit eligibility for four-wheeled cars and small trucks, as well as two-wheeled vehicles.
- The tax credit phases out for four-wheeled electric plug-in vehicles from manufacturers that have sold more than 200,000 qualified vehicles if the vehicle was sold before 2022.
- The tax credit is phased out for Toyota, Tesla, and General Motors cars with at least four wheels through tax year 2022.
- There's no tax credit for a used electric vehicle on your 2022 taxes, but qualified used electric vehicles purchased after January 1, 2023, will be eligible for a credit.
- Your modified adjusted gross income and the cost of the vehicle must be below certain limits to qualify for the tax credit.
What Is Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit?
Form 8936 is an IRS form for claiming the Qualified Plug-in Electric Drive Motor Vehicle Credit on an individual’s tax return. Taxpayers may use Form 8936, provided the new plug-in electric vehicle (EV) that they purchase meets certain eligibility requirements. Tax credits reduce the amount of income tax that a taxpayer owes, dollar for dollar.
Internal Revenue Code (IRC) Section 30D(a) determines tax credit eligibility for cars and trucks with at least four wheels and a gross vehicle weight of fewer than 14,000 pounds. The vehicle must draw energy from a battery with at least five kilowatt-hours that can be recharged from an external source.
The credit for these types of vehicles ranges from $2,500 to $7,500, depending on the capacity of the electric battery. A vehicle with a five-kilowatt-hour battery is eligible for the minimum $2,500 credit. The credit increases by $417 per additional kilowatt hour up to a maximum of $7,500.
The American Taxpayer Relief Act of 2012 modified IRC Section 30D to include a provision for certain two- and three-wheeled vehicles purchased in 2012 or 2013. The credit for these types of vehicles was 10% of the purchase price, up to $2,500. This tax credit was only for vehicles purchased and driven in one of these two years.
The Taxpayer Certainty and Disaster Tax Relief Act of 2020 extended the credit for qualified two-wheeled (but not three-wheeled) plug-in electric vehicles acquired between 2015 and the end of 2021. According to IRC Section 30D(g), new two-wheeled vehicles may qualify for the credit if they:
- Are capable of achieving a speed of 45 miles per hour or greater
- Draw electricity from a battery with a capacity of at least 2.5 kilowatt hours
- Have a gross vehicle weight of fewer than 14,000 pounds
The amount of the credit is 10% of the purchase price, up to $2,500, just as it was for two- and three-wheeled vehicles purchased in 2012 or 2013.
Who Can File Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit?
To be eligible for the electric vehicle tax credit, you must have purchased your four-wheeled electric plug-in vehicle during or after 2010, or their two-wheeled plug-in vehicle between 2015 and the end of 2021, as noted above, and begun driving it in the same year when the credit is claimed.
Under IRC 30D, the tax credit phases out for a manufacturer’s four-wheeled vehicles over the one-year period beginning with the second calendar quarter after the 200,000th sale. During the phaseout period, qualified vehicles are still eligible for 50% of the credit if purchased within the first two quarters, or 25% of the credit if purchased in the third or fourth quarter. Vehicles purchased by that manufacturer beyond the phaseout period are no longer eligible for the tax credit.
Three manufacturers—Toyota, Tesla, and General Motors—have hit the sales limit of 200,000 qualified vehicles. A vehicle purchased from these three manufacturers, no matter its battery size, will not qualify for the tax credit through the 2022 tax year.
Due to new legislation, though, vehicles sold after 2022 are no longer subject to the phaseout.
Used Electric Vehicles
When you file your 2022 taxes in 2023, there is no tax credit for used electric vehicles; the vehicle must be new at the time of purchase. However, beginning on January 1, 2023, if you buy a qualified used electric vehicle from a licensed dealer, the vehicle may be eligible for a tax credit. The vehicle must have been purchased for $25,000 or less.
The used EV tax credit is worth 30% of the sale price, up to a maximum credit of $4,000. It is nonrefundable, so if it is bigger than what you owe in taxes, you cannot get the difference back as a tax refund or apply it to future taxes.
The first year you can claim the tax credit for used electric vehicles is when you file your 2023 taxes in 2024; used EVs purchased before January 1, 2023, are not eligible.
To qualify for the used electric vehicle tax credit, the vehicle must have a manufacture date at least two years earlier than when you buy it. For vehicles purchased in 2023, the vehicle must be from 2021 or earlier. Additionally, to qualify for the credit, you cannot:
- Buy the vehicle for resale
- Be the original owner
- Be a dependent on another person's taxes
- Have claimed a clean vehicle credit in the three years before you bought the used vehicle
Leased Electric Vehicles
The credit cannot be claimed by the drivers of leased vehicles. It will instead go to the manufacturer offering the lease. The tax credit may be partially factored into the lease costs, so the customer may see some benefit.
Plug-in hybrid vehicles also qualify for the tax credit. The 2021 Toyota Prius Prime, for example, qualifies for the tax credit due to its plug-in recharging capabilities. However, the standard 2021 Toyota Prius does not because the vehicle does not plug in to recharge.
How to File Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit
Although car and motorcycle manufacturers may advertise the electric vehicle tax credit as a discount on the vehicle, it is not a discount to you as the buyer up front. It simply reduces your tax liability for the year when you purchase the qualified vehicle. You must still pay the full cost of the vehicle as negotiated at the time of sale.
However, when you file your taxes for the year, you will fill out Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit to receive your tax credit and direct dollar-for-dollar reduction of your taxes owed.
Because it is a nonrefundable tax credit, you will only receive a credit to the point that your tax liability is reduced to zero. You will not receive the balance back beyond that point. Once you have completed the form, you can submit it along with your taxes when you file them for the year.
You can download all versions of Form 8936: Qualified Plug-in Electric Drive Motor Vehicle Credit here on the IRS website.
Are Electric Vehicle Tax Credits Available in 2022?
Yes, electric vehicle tax credits for both four- and two-wheeled vehicles are available in 2022. You must purchase an eligible fully electric motorcycle or car or plug-in hybrid model car by a qualified manufacturer. Toyota, Tesla, and General Motors vehicles do not qualify for 2022 taxes, which are filed in 2023.
Be aware: Tax laws are subject to change regarding eligibility for electric vehicle tax credits.
How Many Times Can You Claim the Electric Vehicle Tax Credit?
You can only claim the credit once for each qualifying vehicle. The tax credit must be claimed in the year when you purchased and began to use your new fully electric or plug-in hybrid model car or fully electric two-wheeled vehicle.
However, if you purchase a separate qualified fully electric or plug-in hybrid vehicle in another year, or two separate qualified cars in the same year, then you can still claim the tax credit for the other vehicle. It is not a once-in-a-lifetime tax credit in that sense.
Is There an Income Limit for Claiming the Electric Vehicle Tax Credit?
You may not claim the electric vehicle tax credit if your modified adjusted gross income is above certain thresholds. If you are married and filing jointly, a qualified surviving spouse, or a qualified widow(er), the MAGI limit is $300,000. If you file as a head of household, the MAGI limit is $225,000. For all other taxpayers, the income limit is $150,000. You must use the lesser of your MAGI from either the year your qualifying vehicle was placed in service or the previous year.
Are There Price Limitations for Claiming the Electric Vehicle Tax Credit?
For new clean vehicles, the manufacturer's suggested retail price (MSRP) must not be higher than $80,000 for vans, sport utility vehicles, and pickup trucks. For all other new vehicles, it may not be higher than $55,000. Starting in 2023, used vehicles must be purchased for $25,000 or less to qualify.
The Bottom Line
Filing IRS Form 8936 with your taxes allows you to claim a tax credit for purchasing an electric plug-in vehicle. This tax credit is intended to make buying an electric vehicle (EV) more affordable. The credit ranges from $2,500 to $7,500, depending on the capacity of the electric battery. Starting in 2023, qualified used vehicles can also qualify for a smaller tax credit.
To qualify for the credit, your modified adjusted gross income and the cost of the vehicle must be within certain limits. The tax credit is nonrefundable.