How Does the Federal EV Tax Credit Work

The federal EV tax credit offers up to $7,500 for eligible electric and plug-in hybrid vehicles. The full amount is typically available for fully electric vehicles with larger battery capacities, while plug-in hybrids may qualify for a reduced credit depending on their battery size. The Jeep 4xe models, for example, offer a $3,750 tax credit, while the all-electric Wagoneer S offers the full $7,500. The actual credit amount can vary based on the vehicle's specifications, such as its battery capacity and whether it meets the necessary manufacturing and sourcing requirements. It's important to note that the credit is non-refundable, meaning it can only reduce your tax liability up to the amount you owe, and any unused portion will not be refunded.

Not all electric vehicles and PHEVs automatically qualify for the clean vehicle tax credit, as there are requirements to meet. To qualify, the vehicle must be manufactured by an automaker that follows current federal guidelines, including requirements for domestic assembly and the use of domestically sourced battery minerals and components. Additionally, the vehicle must have a qualifying battery capacity, typically at least 7 kilowatt hours (kWh). There are also price caps: cars must cost less than $55,000, while SUVs, trucks, and vans must be priced under $80,000 to be eligible for the credit.

In addition to the credit for new electric and plug-in hybrid vehicles, the federal government also offers a tax credit for used EVs and plug-in hybrids. This credit can provide up to $4,000 for qualifying used vehicles, making it a great option for buyers looking to switch to electric without the higher cost of a new model. To qualify for the used EV tax credit, the vehicle must be at least two years old, priced under $25,000, and meet other requirements such as having a minimum battery capacity.

To claim the federal EV tax credit, you must file IRS Form 8936 along with your annual federal tax return. The credit is applied directly to your tax liability, reducing the amount of taxes you owe. To be eligible, the vehicle must meet the necessary criteria, such as being manufactured by a qualifying automaker, having the required battery capacity, and falling within the price limits. For new vehicles, the credit can be up to $7,500, while used EVs and plug-in hybrids can qualify for up to $4,000. Keep in mind that the credit is non-refundable, so it can only offset your tax liability up to the amount you owe. If you don't have enough tax liability to claim the full credit, the remaining balance will not be refunded. However, starting in 2024, there will be an option to transfer the credit directly to the dealership at the time of purchase, reducing the upfront cost of the vehicle.

The federal EV tax credit is a valuable incentive for those looking to switch to an eco-friendly vehicle, offering significant savings on both new and used electric and plug-in hybrid models. At Marburger Chrysler Dodge Jeep Ram, we're proud to offer a wide selection of models that qualify for the EV tax credit. Explore our inventory online today to find the perfect model for you. If you have any questions or need assistance, don't hesitate to reach out to our sales team using the contact form below. We're here to help you every step of the way!