If you’re thinking about buying an EV, the IRS will give you up to $7,500 in tax incentives—and as of this month, you can cash in right at the dealership, instead of having to wait until tax season.
The government is giving would-be EV buyers a nudge by allowing them to use a discount right at the time of purchase instead of having to wait for tax season to roll around for a refund. It could be a much-needed boost for an EV sector that’s struggled amid slowing demand and growing competition from foreign manufacturers.
“Under the 2024 rules, taxpayers can obtain an advance on the EV tax credit from their dealer when they buy the vehicle,” wrote Andy Phillips, director of the H&R Block Tax Institute, in an email to Coins2Day.
The IRS first started handing out tax credits to EV buyers in 2022, after the passing of the Inflation Reduction Act—up to $7,500 for new cars. The policy was a key part of President Biden’s commitment for half of all new vehicle sales to be electric by 2030.
But the government has been slowly rolling back some of the terms in recent months: Dozens of models are no longer eligible for the credit, and proposals to exclude vehicles with Chinese-sourced batteries have left consumers scratching their heads about whether they qualify. The changes drew heavy criticism from Sen. Joe Manchin (D–W. Va.) Last year.
“Tighter restrictions apply in 2024 than in 2023 regarding manufacturing and vehicle components. This means a smaller range of vehicles qualify for a credit in 2024 than in 2023,” wrote Phillips. “Changes year over year may have confused some customers regarding vehicle eligibility.”
The latest change to make the credit more accessible is a reversal of the general direction of the policy changes in the past year. The tax incentive tweak comes with a small caveat, though: Buyers have to make sure their eligibility doesn’t change between the time they buy an EV and the time they submit their taxes the following year, says Phillips. If during that period they lose eligibility—by getting a raise and climbing above the $300,000 joint filing income cutoff, for example—they’ll be on the hook to give back up to $7,500.
However, there is a possible silver lining, according to a H&R Block representative. You can use your modified AGI from the year you take delivery of the vehicle or the year before, whichever is less. If your income is below the threshold for one of the two years, you can claim the credit.
The policy tweak could prove to be a much-needed boost for the EV sector, which is struggling after years of freewheeling growth. Demand is drying up, and domestic manufacturers are cutting spending and lowering their production targets. American carmakers are struggling to compete with the bottom-dollar prices offered by manufacturers in China. And while high tariffs and government protections are keeping cheap Chinese EVs off American roads for now, experts project that could change in the next year or two.