How The Federal EV Tax Credit Works at Tax Time
The usual caveat applies. This is our best effort to provide updated information, but a tax professional should be consulted for a final determination.
Leasing
If you leased an EV, it is eligible for the tax credit and not subject to the restrictions around a purchase. However, the tax credit goes to the lessor, so don’t try to claim it on your return. It is the seller’s choice whether to pass the incentive along to the consumer. The seller should be transparent about it, though not all of them are. A $7500 incentive translates to a $208 reduction in monthly payments on a 3-year lease. (This is not high math – 7500/36.)
Purchased with Transfer
A new feature of the purchase incentive began in 2024, namely the transfer provision. It allows the buyer to transfer the tax credit to the seller, and the seller then subtracts the incentive from the invoice price. It effectively turns the tax credit into a point of sale rebate. The seller gets reimbursed by the US Treasury. Over 90% of EV purchases of incentive-eligible vehicles have taken advantage of this. In this case, you should not file for a tax credit since that would be getting it twice.
Purchased with Plans to Take the Credit When Filing
Those who bought eligible vehicles and did not take the transfer need to include it in their tax returns. A dealer should have provided a “seller report” at the time of sale for this purpose. A buyer should have this when they drive off the lot. The IRS requires the dealer to file it within 3 days of the sale.
Income Restriction
One of the incentive restrictions is a cap on modified adjusted gross income of $300,000 for joint filers, $225,000 for head of house filers, and $150,000 for individual filers. A purchaser can use income from either the current or prior year to fulfill the requirement. If someone purchases a vehicle and has an income that exceeds the limit in both years, then the tax credit cannot be claimed, and if the transfer was used, it will be clawed back.
Complications: Portal issues 2023 vs 2024
A complication has surfaced that will affect some portion of those who purchased an EV and did not use the transfer. While that is a small percentage of buyers, it could still translate into hundreds of thousands of people. With the launch of the transfer provision, Treasury built a new portal. The portal was for both the transfer and traditional tax-credit versions of the rebate. Dealerships have to sign up for both forms of the rebate. However, some dealers inadvertently used the seller report form from the 2023 portal and the IRS is rejecting them. The consumer, having received a seller report from the dealer, would have no way of knowing this until that happens.
The IRS has been very strict regarding the 3-day filing limit. There is precedent for the IRS to show some flexibility and grant late filings but with the chaos in Washington and the hostility toward the EV incentive, it is hard to say if this will go through. The National Automotive Dealers Association is pushing for it.
This article from NPR has additional detail.