Starting January 1, 2023 people who buy qualified used electric cars from a dealership for less than $25,000 could be eligible for a tax credit of up to $4000. This guide and lookup tool helps you figure out if a car you’re interested in is eligible and if you qualify.
Check a used EV for tax credit eligibility
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Vehicle Eligibility: Which cars are eligible?
Many of the vehicles that are eligible for the used tax credit in 2023 will be older EVs with limited range, as well as plug-in hybrids. (If you’re curious if a used EV could work for you, check out this article. Nervous about range restrictions but want a sweet, emissions-free ride? Read this one.)
1. Vehicles must be at least two models years old (2021 and earlier)
2. Vehicle must have a battery with at least 7kWh - that’s mostly all plug-ins!
3. Vehicles must be sold by a licensed dealer
4. Vehicle cannot have already been used to claim this credit - again, this one is easy in 2023!
5. Vehicle must be sold for less than $25,000. Here, you’ll find a few popular examples of fully electric vehicles that are often sold below that price. Remember that if you find a used EV you love and can negotiate the price below $25,000, it can qualify!
- An early model Nissan LEAF (2011 to 2017) is under $15,000 with a range of 60 - 100 miles on full charge. Later model years are increasingly available under $25,000, with the 2020 LEAF being the most popular car in inventory under this price.
- Fiat 500e (2014 - 2019) is under $20,000 with a range of 60 - 85 miles.
- VW e-Golf (2015 to 2019) is around $20K with a range of 70-85 miles.
- BMW i3 (2014 to 2019) is around $20,000 with a range of 65- 80 miles. With luck, you can find a 2018 for shy of $25,000.
- It’s rare to find a 2017 to 2020 Chevy Bolt under $25,000 so if you find one in good shape under that price, grab it if you can. Bolts generally have the cheapest cost per range mile, with an EPA range of 238-259 miles. They are an especially great bargain since every 2021 and earlier car should have had their batteries replaced as part of the recall!
- 2019 - 2020 Hyundai Ioniq can be just shy of $25,000 and has a range of 120-170 miles.
- 2019 or 2020 Hyundai Kona EVs can also be found just around the cut off price of $25,000. They get an EPA range of 258 miles.
Consumer Eligibility: Can you get a $4000 tax credit?
Used EV buyers can qualify for a tax credit of up to $4,000. If the car is eligible, potential purchasers next need to see if they qualify, which depends on their adjusted gross income and a few other factors.
There are a few requirements for those applying for an EV tax credit:
1. You can only use this credit once every three years, but it’s a new program, so everyone will be eligible January 1, 2023!
2. Income requirements: max adjusted gross income (AGI) of $75,000 for single filer, $150,000 for joint filers, $112,500 for head of household. You can check your AGI by looking at your previous year’s tax returns:
- Form 1040, Line 38
- Form 1040A, Line 21
- Form 1040EZ, Line 4
The IRS recently clarified that you may use the AGI from either the year you’re buying the car or the previous year, whichever is lower.
3. Is this car purchase for personal, non-commercial use? You cannot plan to resell the car, you cannot be the original owner of the vehicle, and you cannot be claimed as a dependent on anyone else's tax credit. Eligible purchasers will have to fill out Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit when they do their year-end taxes.
4. Dealers must report to you at the time of the sale, and to the IRS by January 15 of the next year:
- Dealer's name and taxpayer ID number
- Buyer's name and taxpayer ID number
- Sale date and sale price
- Maximum credit allowable under IRC 25E
- Vehicle identification number (VIN), unless the vehicle is not assigned one
- Battery capacity
Current Market Trends
While EVs must cost less than $25,000 to qualify for the federal tax credit, we’ve also been tracking those with an average price just above the threshold. These are vehicles that may be a great deal if you can find (or negotiate) them under $25,000.
As of 2023, these are the most commonly found plug-in vehicle listings priced under $28,000 - both battery electric and plug-in hybrids.
Overview: Inflation Reduction Act
The Inflation Reduction Act became law in August, 2023. There were some significant compromises in terms of both tax reform and support for domestic oil, but climate advocates agree that is an important step forward to curb carbon emissions and help the US meet its Paris accord goals. Estimates say the Act will cut about one billion tons of greenhouse gas emissions over the next ten years.
United States National Used EV Tax Credit
One of the tenants of the Inflation Reduction Act is the expansion of earlier EV tax credits by introducing the first federal tax credit for used EVs. Since the US added EV tax credits in 2010, no direct-to-consumer, federal assistance has been dedicated to used EVs. A tax credit of $7,500 has been available on new EVs since 2010. Now, for EVs under $25,000 bought from a licensed dealer, a tax credit of up to 30 percent of the purchase price (capped at $4,000) is available on many used EVs.
Starting in 2024, the EV credits can be applied at point-of-sale by transferring the credit to the dealership. This essentially turns the tax credit into a discount on the purchase price. This is a major win for low and moderate income families who may not have the financial freedom to wait until tax season for incentives.
When Does The Tax Credit Take Effect?
The updated new and used EV incentives apply to vehicles purchased after December 31, 2022 and expire on December 31, 2032.
What Will Tax Credits Do To The Used Car Market?
In our October report on the tax credit’s impact on the used EV market, we found that used EV sales are growing as a percentage of total EV sales.
Recurrent CEO Scott Case commented on what the introduction of new tax credits mean for the market:
The used car market–traditional gas and EVs–is twice the size of the new car market. In a lot of ways, the used EV credit is more important than the new EV credit in the long term, as more EV shoppers in the future will be looking for used cars than for new ones, so this bill has the potential to help more drivers.
Having certainty about the future of these credits is really important. Knowing that in the United States we’ll have these continue through at least 2032 is important as long-term policies like this will guide the market transition to electric vehicles.
I’d imagine that in the next year or two, we’ll see some refinement in these policies.: The abrupt limit at $25,000 creates some perverse pricing incentives. We may also see the “one vehicle, one tax credit” policy change. Since many EVs are priced well above $25,000 and are holding their value quite well, it may take three or four sale cycles for those models to be eligible for this tax credit.
It's also worth pointing out that the sub $25,000 market has the oldest vehicles with the most varied battery conditions. It's going to be very important for buyers to understand what they are getting in terms of the battery with those vehicles, making Recurrent’s used-EV reports essential. Putting a tax credit on a cheap car whose battery is about to die doesn't help anyone.
Recurrent Comment: Who Wins Here?
Without getting too deep into the nerdy economics of it, the biggest beneficiary of the used EV tax credits may end up being EV dealers, at least for the next few years. That sounds backward, but it’s because there's not much elasticity of supply in the used EV market.
In other words, there will be greater incentive to buy, but the market can't quickly ramp up supply in response to a lower effective price compared to the increased demand from buyers as a result of that lower effective price. So the impact on sub-$25,000 used-EV prices of this tax credit may– paradoxically–be an average increase of $4,000.
The buyers aren't worse off, as they will end up paying the same amount as they would have before. But the seller ends up getting more for their EV when they sell. Eventually, that flows through to a higher residual value for new EV purchases, making them more valuable to buy when new.
This whole equation will likely shift over the course of the ten-year timeframe as used EV supply catches up with demand, but in any case, this policy will be effective in accelerating the EV transition.
Read more about the tax credits included in the Inflation Reduction Act, and other federal programs to stimulate EV adoption.