New Clean Vehicle Tax Credit

Quick Facts

• Credit value: Up to $7,500 per qualifying new clean vehicle. The credit is split into a $3,750 portion for meeting critical mineral sourcing and a $3,750 portion for meeting battery component requirements.
• Point-of-sale option: Dealers enrolled in the IRS Energy Credits Online portal can apply the credit at purchase and receive payment directly from Treasury, reducing what the buyer pays upfront.
• Income limits: Modified adjusted gross income (MAGI) must be below $300,000 for married filing jointly, $225,000 for heads of household, or $150,000 for single filers.
• Vehicle price caps: Manufacturer’s suggested retail price (MSRP) cannot exceed $80,000 for vans, sport utility vehicles, and pickup trucks, or $55,000 for other passenger cars.
• Deadline: Claim on the 2024 Form 1040 by April 15, 2025, unless you elect point-of-sale transfer.

Program Overview

The Inflation Reduction Act modernized the clean vehicle credit to emphasize North American assembly and battery supply chains. Buyers of qualifying plug-in electric or hydrogen fuel cell vehicles placed in service after January 1, 2024, can claim a nonrefundable credit worth up to $7,500. Unlike prior law, manufacturer sales caps are gone, but strict sourcing and price rules now determine eligibility. Taxpayers may opt to transfer the credit at the dealership beginning in 2024, enabling instant savings instead of waiting for a refund check. The IRS publishes an eligibility list that updates as manufacturers certify vehicles.

Eligibility Requirements for Taxpayers

1. Income threshold: MAGI must not exceed the annual limits. You can use the lesser of your current-year or prior-year MAGI when testing eligibility; if one year qualifies and the other does not, the IRS will use the qualifying year.
2. Tax liability: The credit is nonrefundable. Ensure your projected federal tax bill is large enough to absorb any remaining credit after other nonrefundable credits are applied.
3. Use requirement: Vehicles must be acquired for use, lease, or operation primarily in the United States. Resellers cannot claim the credit.
4. Registration: You must be the first owner; the credit is not available for vehicles purchased for resale or for vehicles used predominantly for business fleet resale purposes.

Vehicle Qualification Checklist

• Final assembly in North America: Check the vehicle’s window sticker or VIN via the Department of Energy VIN decoder to confirm final assembly in the U.S., Canada, or Mexico.
• Battery sourcing: For 2024, at least 50% of battery components by value must be manufactured or assembled in North America, and a minimum percentage of critical minerals must be extracted or processed in the United States or Free Trade Agreement partner countries. The thresholds phase up annually, so confirm the vehicle’s status on the IRS list for the year you place it in service.
• MSRP cap: Ensure the MSRP, excluding destination charges and dealer add-ons, falls below the applicable ceiling. For SUVs and trucks, classification follows EPA size categories.
• Qualified manufacturer certification: Only manufacturers that enter into a written agreement with the IRS and provide regular reports qualify. Tesla, GM, Ford, Rivian, and many others have certified specific trims.
• Battery capacity: Vehicles must include a traction battery with at least 7 kWh of capacity and be capable of charging from an external source.

Income Planning Strategies

• Use prior-year MAGI: Because the credit allows you to use the lower of current or prior-year MAGI, review your 2023 return before committing. If 2023 income was below the threshold but 2024 will be higher, complete the dealer transfer using prior-year figures and retain documentation.
• Adjust withholding and deductions: Contribute to pretax retirement accounts or health savings accounts to reduce MAGI. If you run a business, review Section 179 or bonus depreciation elections that could push MAGI below the limit.
• Coordinate with spouse: Married couples filing jointly must aggregate MAGI. If one spouse has significantly lower income, evaluate filing separately; however, married filing separately is not eligible for the credit, so use caution.

Claiming the Credit on Your Tax Return

1. Receive seller report: Dealers must provide Form 15400 (Clean Vehicle Credit Seller Report) within three calendar days. Verify that VIN, battery certification, and purchase price match your contract.
2. Complete Form 8936: Report the vehicle’s VIN, place-in-service date, and manufacturer-supplied information. When using the point-of-sale transfer, you still file Form 8936 but indicate that the credit was transferred.
3. Attach to Form 1040: Include Form 8936 with your return and carry the credit amount to Schedule 3, line 6f. If using e-file, ensure your software has updated calculations for 2024.
4. Retain documentation: Keep purchase agreements, proof of payment, and the seller report for at least three years in case of IRS examination.

Dealer Point-of-Sale Transfer Steps

• Confirm dealer enrollment: Ask whether the dealership is registered in the IRS Energy Credits Online system. Only enrolled dealers can process the point-of-sale payment.
• Provide taxpayer information securely: You must certify that you meet income requirements and intend to use the vehicle personally. Bring your Social Security number and driver’s license for verification.
• Review the dealer’s submission: Dealers submit transaction data within three days and receive payment from Treasury within 72 hours. Ensure the contract reflects the credit as cash or a down-payment reduction rather than increasing the sale price.
• Monitor IRS acknowledgement: Request a copy of the IRS acknowledgement from the dealer portal to ensure the transfer succeeded.

Documentation Checklist

• Government-issued ID and Social Security number for each taxpayer.
• Purchase agreement showing VIN, MSRP, and delivery date.
• Proof of payment or financing documents.
• Dealer’s Form 15400 and acknowledgement number.
• Copy of your 2023 and 2024 tax returns (draft if pending) to confirm MAGI.
• Printout from the DOE VIN lookup showing final assembly location.

Advanced Tips and Tricks to Maximize Approval

• Reserve allocation early: Popular trims that qualify under sourcing rules often sell quickly. Place factory orders several months ahead and lock pricing with a signed buyer’s order.
• Leasing strategy: Leasing can circumvent sourcing requirements because the lessor claims the commercial clean vehicle credit and may pass savings via reduced monthly payments. Compare lease quotes with purchase scenarios.
• Stack with state incentives: Many states offer rebates or tax credits that can combine with the federal benefit. Track deadlines and funding pools—California’s Clean Vehicle Rebate Project, for example, requires reservation before purchase.
• Coordinate with solar credits: Households installing residential solar in the same year should review total tax liability. Running tax projections ensures you can absorb both the clean vehicle credit and the Residential Clean Energy Credit.
• Maintain compliance for business use: If you later convert the vehicle to predominantly business use or sell within three years, the IRS may recapture part of the credit. Keep mileage logs and maintain at least 50% personal use to avoid recapture.
• Beware of markups: Dealer market adjustments raise the contract price but do not affect MSRP for eligibility. However, they can negate savings. Negotiate or shop multiple dealers willing to sell at sticker.

Frequently Asked Questions

Can I claim the credit for a vehicle ordered in 2023 but delivered in 2024? Yes, eligibility is determined when the vehicle is placed in service. Verify that the VIN remains on the IRS qualified list at delivery.

What if the dealer applied the point-of-sale credit but the IRS later disallows it? You must repay the credit on your tax return if your income exceeds the limit or the vehicle is later found ineligible. The IRS will issue a notice; respond promptly with documentation or repay the amount to avoid penalties.

Does the credit apply to plug-in hybrids? Yes, as long as the battery capacity meets the 7 kWh minimum and the vehicle satisfies sourcing, price, and assembly rules.

Additional Resources

• IRS Form 8936 and instructions
• Department of Energy qualifying vehicle list
• IRS Energy Credits Online dealer portal overview

Insider Playbook to Secure the Credit

• Run VIN eligibility before signing. Scan the VIN QR code and confirm on the DOE lookup to avoid surprises at tax time.
• Capture the dealer acknowledgement. Request the Energy Credits Online confirmation to document that Treasury paid the credit.
• Plan your MAGI now. Use withholding adjustments or estimated tax payments to ensure your final MAGI stays under the threshold when you file.