If you are an electric vehicle (EV) driver, you could be losing thousands of dollars without realizing it. Should you qualify for the federal EV tax credit, you may receive nearly $8,000 back when you purchase a qualifying electric vehicle and meet the eligibility criteria. The good news is that there is a separate tax break of about $4,000 for used EVs, keeping specific conditions in mind. To understand if you qualify for this windfall, you need to take into consideration income limits, vehicle eligibility, and current changes to the program in 2025.
More about the federal EV tax credit
According to the Inflation Reduction Act, the federal EV tax credit is meant to give a financial incentive of up to $7,500 for new electric vehicles and up to $4,000 for qualifying used EVs. This is, however, not a flat-rate benefit. Each person will receive a federal tax liability credit amount according to whether the EV purchased meets the strict eligibility requirements of the program or not.
Since the start of 2024, all buyers can transfer their credit to the dealer at the point of sale, which will result in an upfront discount. This is permissible for buyers who do not have a large tax burden. For used EV buyers, a credit of approximately 30% of the sale price is offered, amounting to $4,000. For the used EV transaction, the vehicle being purchased should be priced under $25,000 as well as meet several additional criteria.
Understanding qualifying EVs in 2025
Citizens who are getting excited about this EV credit need to realize that not every EV is deemed eligible anymore. In order to meet the critical sourcing thresholds for battery minerals and components, the IRS requires vehicles to be assembled in North America.
To realize more of this tax credit, citizens must understand that:
- If approximately 50% of the EV’s battery-critical minerals are sourced from the U.S. or other countries with free trade agreements, an estimated $3,750 is awarded.
- If 60% of the battery components are according to the sourcing standard, another $3,750 is awarded.
- As of 2025, vehicles with materials from foreign entities are disqualified due to not meeting eligibility criteria entirely.
For the full credit of $7,500 for May 2025, these EVs are said to qualify:
- Hyundai IONIQ 5
- Tesla Model 3 (Long Range AWD, Performance)
- Kia EV6 and EV9
- Chevrolet Blazer EV, Equinox EV, and Silverado EV
- Cadillac LYRIQ and OPTIQ
- Ford D-150 Lightning (all trims under $80,000)
- Acura ZDX
- Honda Prologue
Nevertheless, each EV must meet MSRP limits of $55,000 for sedans and $80,000 for trucks, SUVs, and vans. It is important for citizens to check in with the IRS or their respective dealer using the VIN decoder tool to confirm the eligibility for each specific model, as not every configuration and trim qualifies.
Qualifying criteria based on income and ownership requirements
As per the IRS EV tax credit rules, a citizen’s income must be below certain thresholds:
- $150,000 for individuals
- $225,000 for heads of household
- $300,000 for joint fillers
Used EV credits have a cap that is slightly lower and is as follows:
- $75,000 for individuals
- $112,500 for heads of households
- $150,000 for joint fillers
Other conditions that must be met include:
- Used EVs need to be at least two model years old and must be sold through a licensed dealer.
- Citizens cannot claim a used EV credit more than once every three years.
- The citizen cannot claim the EV credit as a dependent and must be the buyer.
- The EV needs to be mainly used in the U.S.
A final requirement is that the EV meets the minimum battery capacity and weight requirements of 7 kWh for the battery, and the gross weight needs to be 14,000 pounds. Like the EV credit on offer, the IRS also offers a $1,500 or $3,200 tax credit for home improvements.
Importance of understanding tax credits
Although the EV tax credit is considerably helpful as a clean energy incentive, it is not available automatically. Citizens interested in purchasing either a new or used EV must ensure that they meet the income threshold and that the EV complies with federal rules. Citizens need to ensure that they owe enough taxes to qualify for the full credit benefit.
Letting this windfall pass you by is not an option, and neither is leaving other tax credits on the table.
