Clean Vehicle Tax Credit: What You Need to Know for New EVs

Let’s Breakdown the Clean Vehicle Tax Credit for New EVs

6 min read

By • March 20, 2024

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As of April 18, 2023, there are new requirements for buyers seeking to benefit from the Clean Vehicle Tax Credit. This Clean Vehicle Tax Credit is essentially an incentive program designed to promote the adoption of electric vehicles (EVs). It does not matter whether you bought your new EV before or after that date, you will need to meet certain criteria to claim the credit. However, this credit for new EVs only applies if they are purchased in 2023 or after. Here is a breakdown of what you need to know:

Qualification Criteria

To qualify for the Clean Vehicle Tax Credit, your new EV must meet critical mineral and battery component requirements despite being bought before or after April 18, 2023. Even if you bought your EV before this date, it still needs to meet the new standards to qualify for the credit.

Eligible EVs

The credit is for brand-new plug-in EVs or that are placed in service from 2023 onwards. But, to qualify, these EVs must meet certain criteria: they need a battery that is at least 7-kilowatt hours, they cannot weigh more than 14,000 pounds, and their final assembly must take place in North America.

The list of new EVs qualified for claiming the tax credit includes Audi e-tron, Tesla Model S, F-150 Lightning, Mercedes-Benz smart Coupe EV, and many more. See here for a list of new eligible EVs.

Credit Amount and Requirements

The amount of the credit you can claim will depend on when the EV was placed in service. For EVs placed in service between January 1 and April 17, 2023, you could claim a credit ranging anywhere from $2,500 to $7,500 depending on battery capacity. The specified range starts with a base amount of $2,500, and if your EV boasts at least 7-kilowatt hours of battery capacity, you’ll receive an additional $417. Each additional kilowatt hour beyond 5 adds another $417 to your credit, giving you a chance for a maximum credit of $7,500. Even if your new EV is on the modest side with just 7 kilowatt hours, you are still looking at a minimum credit of $3,751 – adding that base $2,500 to three times $417.

For EVs placed in service on or after April 18, 2023, there will be extra critical mineral and battery component requirements to complete. EVs must meet existing criteria along with new critical mineral and battery component requirements. Depending on whether your new EV checks off only the critical minerals or only the battery components, you are looking at a credit of $3,750. But if it’s both, you will receive $7,500. But if your EV falls short of these new requirements, it may result in being ineligible for the credit.

Claiming the Credit

If you are planning to claim the Clean Vehicle Tax Credit, you must fill out Form 8936 along with your tax return and provide your EV’s VIN (Vehicle Identification Number). It is crucial to verify that the seller provides the necessary information at the time of sale and registers online, and then reports the same information to the IRS. If these actions are not done properly, they may render the EV ineligible for the credit. In addition, the manufacturer suggested retail price (MSRP) cannot break past $80,000 for vans, SUVs, and pickups. For other EV types, it is $55,000.

Income Thresholds

There are also income thresholds to consider when claiming the credit. Modified adjusted gross income (AGI) limits apply, with thresholds varying depending on filing status. Individuals must ensure their modified AGI falls below the specified thresholds to qualify for the credit.

When it comes to claiming that coveted Clean Vehicle Tax Credit, your income matters. Here is a breakdown of requirements that your AGI cannot surpass certain limits: First, if you’re filing jointly as a married couple, your AGI must not go over $300,000. Second, heads of households must keep their AGI under $225,000. Third, for all other filers, the limit is $150,000.

Nevertheless, you can use your modified AGI from the year you got purchased your new EV or the year before, whichever is less. So, if your AGI falls below the threshold in either of those years, you are eligible for the credit.

Next Steps

If you are considering buying new EVs or have already done so, you should review the new requirements carefully to ensure eligibility for the Clean Vehicle Tax Credit. It is advisable to consult with a tax professional for personalized guidance based on individual circumstances. By understanding these changes and meeting the eligibility criteria, you can take full advantage of the credit while contributing to a cleaner, more sustainable future.

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