Have you always dreamed of buying a Tesla but can’t afford the hefty price tag? Well, you’re in luck. Tesla recently knocked the prices down on its Model Y, Model 3, Model X sport utility vehicle (SUV), and Model S luxury sedans.
Better yet, you may be able to save another $7,500 if you qualify for the new EV tax credit , which passed last year. Changes to the EV tax credit were part of the Inflation Reduction Act signed by President Joe Biden in August 2022.
Which cars qualify for the new EV tax credit?
Under the new EV tax credit guidelines, the EV you plan to purchase must have a manufacturer-suggested retail price (MSRP) under $55,000 for most vehicles and under $80,000 for vans, SUVs, and pickup trucks.
Before Telsa recently cut its prices by almost 20 percent, most of the company’s vehicles wouldn’t qualify for the new EV tax credit. The cost of a Model Y was over $65,000. Now, after the price cut, its price is $52,990.
Both plug-in hybrid vehicles and fully electric vehicles may qualify for the tax credit. The IRS website has a list of vehicles that may qualify as long as they meet several other restrictions, the price being just one of them.
Another requirement for the tax credit is that the EV must undergo its final assembly in North America. EVs made by foreign car manufacturers like Kia, Toyota, and Hyundai aren’t currently eligible. Some Volkswagen ID.4 vehicles would qualify for the tax credit if the final assembly were done in Chattanooga, Tenn. and not Germany.
The U.S. Department of Energy provides information on EVs with final assembly in North America. If you aren't sure whether a vehicle qualifies for the EV tax credit or not, you can search using the Vehicle Identification Number (VIN).
The EV must also have a battery capacity of at least 7-kilowatt hours and a gross vehicle weight rating of less than 14,000 pounds to qualify for the tax credit.
Are there income restrictions for the EV tax credit?
Yes, your income also plays a part in whether or not you’re eligible for the tax credit. Single taxpayers must have a modified adjusted gross income (AGI) under $150,000. For married couples filing jointly, their income can’t exceed $300,000, and the income threshold for heads of households is $225,000.
You can use your income from the year you take delivery of the EV or the year before, whichever is less. The tax credit is applied against your tax bill and isn't refundable. That means you have to owe the tax man at least $7,500 to benefit from the credit fully.
Do used EVs qualify for a tax credit?
If you buy a previously owned EV, you may still be able to get a tax credit. The new rules allow for a $4,000 tax credit for EVs that cost less than $25,000 and are at least two years old. The income threshold is lower for used EVs. The income cap is $75,000 for a single taxpayer and $150,000 for a married filing jointly.