Tax Credits for Hybrid, Electric, and Alternative Fuel Vehicles

woman charging her car while her family packs it with things

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The Internal Revenue Service (IRS) has been introducing and maintaining tax credits to promote energy efficiency since 2008, when it added Section 30D to the Internal Revenue Code (IRC). The section is a provision for the Qualified Plug-In Electric Drive Vehicle tax credit, now called the Clean Vehicle Credit, first provided for by the Energy Improvement and Extension Act of 2008. The legislation addresses the impact of greenhouse gas emissions on the climate, and was updated in August 2022 to include new provisions and restrictions.

While the expense of purchasing an alternative-fuel vehicle can be high, the positive impact on the environment and the potential tax credit you can receive might make it worth it. Here's what to know before you buy.

Key Takeaways

  • The Clean Vehicle Tax Credit is up to $7,500 for electric vehicles (EVs) that qualify.
  • You can get the tax credit for buying a new vehicle, and starting in 2023 you can get it for buying a used vehicle, too.
  • The vehicle must comply with several other requirements, including being assembled in North America.
  • Many states offer their own incentives for purchasing electric and hybrid vehicles, including tax credits.

The Clean Vehicle Tax Credit

This tax credit can be as much as $7,500. Before 2023, the amount depended on the type of battery and its capacity. Beginning in 2023, the amount of the credit will depend on the source of the critical minerals in the battery and where it was made. Other requirements include:

  • The vehicle must be assembled in North America.
  • Your income must be below $150,000 ($300,000 for married taxpayers filing jointly).
  • The vehicle sales price must be below $55,000 ($80,000 for pickups and SUVs).


The Inflation Reduction Act of 2022 changed the requirements to the Clean Vehicle Credit, adding income and price restrictions. Eligible vehicles now must have their final assembly in the U.S., and at least 50% of their batteries must be made or assembled in the U.S. with at least 40% U.S.-sourced critical minerals. The Department of Energy maintains a list of vehicles with final assembly in the U.S.

 The IRS provides a list of qualifying vehicles and credits on its website, including:

 Make Model Years Maximum Credit
Honda Accord Plug-In Hybrid 2014 $3,626
  Clarity Plug-In Hybrid 2018, 2019, 2020, 2021  $7,500 
Nissan Nissan LEAF 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021, 2022 $7,500
Toyota  Prius Prime Plug-in Hybrid 2017, 2018, 2019, 2020, 2021, 2022  $4,502
Prius Plug-in Electric Drive Vehicle 2012, 2013, 2014, 2015 $2,500
RAV4 EV 2012, 2013, 2014 $7,500
RAV4 Prime Plug-In Hybrid 2021, 2022 $7,500
Lexus NX Plug-In Hybrid 2022 $7,500
Hyundai  Sonata Plug-in Hybrid Electric Vehicle 2016, 2017, 2018, 2019 $4,919
Tucson Plug-In Hybrid 2022 $6,587
Santa Fe Plug-In Hybrid 2022 $6,587
Ioniq 5 Electric Battery Vehicle 2022 $7,500
Ford  Focus Electric 2012, 2013, 2014, 2015, 2016, 2017, 2018 $7,500
Fusion Energi 2013, 2014, 2015, 2016, 2017 $4,007
Fusion Energi 2019, 2020 $4,609
Escape Plug-In Hybrid 2020, 2021, 2022 $6,843
Mustang Mach-E Select (AWD, RWD models) 2021, 2022 $7,500
Subaru  Crosstrek Hybrid 2019, 2020, 2021 $4,502
Solterra 2023 $7,500

Vehicles purchased before Aug. 16, 2022, are eligible for the tax credit under the rules that applied before that date. Vehicles purchased between Aug. 17, 2022, and Dec. 31, 2022, are eligible under those rules as well, with the exception that they must have final assembly in North America.

'Neighborhood' Vehicle Credit

"Neighborhood" electric vehicles (two- and three-wheelers) don't qualify for this tax credit, but they have a credit of their own under Section 30D(g) of the IRC. The vehicle must have been purchased in 2012 or 2013, and the tax credit is worth 10% of the purchase price, up to a maximum of $2,500.

How the Tax Credit Works

The Clean Vehicle Credit is capped at $7,500 per vehicle. You can get $3,500 of the credit if a required portion of the vehicle's battery is assembled in the U.S. That portion will change by year:

  • 2023: 50%
  • 2024: 60%
  • 2025: 60%
  • 2026: 70%
  • 2027: 80%
  • 2028: 90%
  • 2029–2032: 100%

You can get another $3,500 of the credit if a portion of the critical minerals of the battery came from the U.S. or a free-trade partner, or were recycled in North America. That portion will also increase over time:

  • 2023: 40%
  • 2024: 50%
  • 2025: 60%
  • 2026: 70%
  • 2027–2032: 80%

Cars purchased before Dec. 31, 2022, are eligible for a tax credit of between $2,500 and $7,500 depending on the battery, which must have at least 5 kilowatt hours of capacity. You're eligible for an additional $417 for every kilowatt hour in capacity beyond that. You must have a binding written contract to claim the credit under the old rules.

Credit Phaseouts

Before 2023, this tax credit would phase out based on when the manufacturer's total, cumulative sales of qualifying vehicles reaches 200,000. The phaseout begins two calendar quarters after the manufacturer reaches this benchmark. The phaseout is typically a 50% reduction if you buy the vehicle in the first and second quarters of the phaseout period. It then drops to 25% in the third and fourth quarters.


Three manufacturers—General Motors, Tesla, and Toyota—have already reached sales of 200,000 or more.

However, those manufacturing caps are lifted beginning in 2023.

How to Claim the Federal Tax Credit

You can claim the IRC 30D credit—or the IRC 30D(g) credit—for the tax year in which you purchased and began driving the vehicle. For example, you would need to have purchased the vehicle and started driving it in 2022 to claim the tax credit on the 2022 tax return that you file in 2023.

Claiming the tax credit involves completing and filing both Schedule 3 and IRS Form 8936 with your tax return. Form 8936 will calculate your credit, which you can then enter on line 6f of Schedule 3. You would transfer the total from lines 1 through 7 on Schedule 3 to line 20 of your Form 1040 tax return.


Complete and submit Form 8834 instead if you're claiming the IRC 30D(g) credit for a two- or three-wheeled vehicle.

Form 8936 includes a section (Part III) for your personal use of the vehicle, and another section (Part II) for business or investment use. You must additionally complete and submit Form 3800, "General Business Credit," if you purchased the vehicle for business or investment use. You can still claim this credit if you're subject to the Alternative Minimum Tax.

State-Level Tax Credits

The majority of states and the District of Colombia also offer incentives for electric or hybrid vehicles, so you might not be limited to the federal tax credit. There are different benefits available in each state, some of which are tax credits. Other incentives may include utility rate reductions, registration fee reductions, and exemptions from emissions testing.

As of 2022, the majority of states offered tax credits or policies for electric or hybrid vehicles. You're limited to the federal tax credit for states that do not.

Frequently Asked Questions (FAQs)

Who qualifies for the electric vehicle tax credit?

You can qualify for the EV tax credit in 2023 if your modified adjusted gross income (MAGI) is under $150,000 and the vehicle you purchase is priced under $55,000 ($80,000 for pickups, vans, and SUVs). These are new requirements established by the Inflation Reduction Act. Beginning in August 2022, alternative fuel vehicles will only qualify for the credit if the final assembly was in North America. Beginning in 2023, additional battery sourcing requirements apply. You can run the car's Vehicle Identification Number (VIN) to check its eligibility.

How many times can you claim the electric vehicle tax credit?

The Clean Vehicle Tax Credit is claimed once per car. You can take the credit in the year you start driving the car. Starting in 2024, you'll be able to transfer the credit to the dealer that sells you the car, effectively discounting the purchase price instead of waiting until tax time to take the credit.

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  1. IRS. “Plug-In Electric Drive Vehicle Credit (IRC 30D).”

  2. U.S. Department of Energy. "Electric Vehicles with Final Assembly in North America."

  3. IRS. “Plug-In Electric Drive Vehicle Credit at a Glance.”

  4. U.S. Department of Energy. "Electric Vehicle (EV) and Fuel Cell Electric Vehicle (FCEV) Tax Credit."

  5. "Clean Vehicle Tax Credits in the Inflation Reduction Act of 2022," Page 2.

  6. "Clean Vehicle Tax Credits in the Inflation Reduction Act of 2022," Page 3.

  7. IRS. "IRC 30D New Qualified Plug-In Electric Drive Motor Vehicle Credit."

  8. IRS. “Instructions for Form 8936.”

  9. National Conference of State Legislatures. “State Policies Promoting Hybrid and Electric Vehicles.”

  10. U.S. Department of the Treasury. "Frequently Asked Questions on the Inflation Reduction Act’s Initial Changes to the Electric Vehicle Tax Credit," Page 1.

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