Using tax credits and rebates to your advantage could save you thousands on a new electric vehicle

EV buyers may be eligible for thousands of dollars’ worth of tax credits and rebates.

While electric-vehicle prices have come down in the past year, affordability is still an issue for US buyers.

According to Cox Automotive, new EVs sold for an average of $56,328 in September, while the average price paid for any new car was $48,397.

Such high pricing is making it harder for a new wave of shoppers to commit to an electric car, but federal and state tax credits that give you money back for buying an EV could mean you’re in luck if you’re looking to plug in. You just need to know how to cash in.

New requirements for a $7,500 federal tax credit under the Inflation Reduction Act went into effect at the start of this year. The revised rules limited the number of EVs on the market that qualify for the credit, but more vehicles are expected to qualify as automakers adjust. In the meantime, a leasing loophole is helping more buyers access the full $7,500 credit.

Here’s what to know about claiming tax credits and rebates on electric-car purchases.

EVs eligible for the full federal tax credit must meet certain battery- and mineral-related requirements.

Federal EV tax credits

The federal EV tax credit is split: You can get $3,750 if the vehicle meets either the critical-minerals requirements or the battery-component requirements. If it meets both sets of requirements, it qualifies for the full $7,500 credit.

Here’s a closer look at those requirements:

• The vehicle must have a battery capacity of 7 kilowatt-hours or more.

• The gross vehicle weight rating must be less than 14,000 pounds. (For context, the gargantuan Hummer EV weighs about 9,000 pounds.)

• Final assembly of the vehicle must take place in North America.

• At least 50% of minerals for the vehicle and battery components must be extracted, processed, or recycled in the US or countries with which the US has a free-trade agreement.

• The manufacturer’s suggested retail price can’t top $80,000 for vans, SUVs, and pickup trucks, or $55,000 for all other vehicles.

Dealers are taking advantage of a leasing loophole to apply the $7,500 credit to more EVs.

The leasing loophole:

• Leased electric vehicles are categorized under the “qualified commercial clean vehicles” tax credit, which has fewer restrictions than the “new clean vehicle” credit outlined above.

• Under these rules, dealers are afforded $7,500 for all-electric vehicles and are not held to the individual buyer standards of income caps, MSRP limits, or mineral and component requirements. Dealers are taking advantage of this by passing along their $7,500 credit to lessees who may not otherwise qualify for the credit if they purchase the vehicle.

If you’re buying used:

• The used-EV credit took effect last year.

• The vehicle must be at least two years old, under $25,000, and sold by a licensed dealership.

• Your income can’t exceed $150,000 if you’re a joint filer or surviving spouse, $112,500 if you’re a head of household, or $75,000 if you’re a single filer.

• Taxpayers are eligible for a credit of 30% of the vehicle price, up to $4,000.

• The purchaser cannot be the same person who bought it new.

• There can only be one credit taken per vehicle.

• Taxpayers can use this credit once every three years.

Used EVs can qualify for a tax credit of up to $4,000.

State credits

Some states have incentives for EVs in addition to the federal tax credits. Here are just a few examples.

Colorado:

• Residents can get a tax credit of up to $5,000 for buying or leasing a light-duty EV or truck or a plug-in hybrid EV.

Illinois:

• The state offers rebates of up to $4,000 for residents who buy or lease a new or used EV.

New York:

• Residents can get a $2,000 rebate for EVs with an EPA-rated range greater than 200 miles, $1,000 for EVs rated 40 to 199 miles, and $500 for EVs with a range under 40 miles or with a sticker price under $42,000.

Rhode Island:

• The state offers residents up to $1,500 for the purchase or lease of a new battery-electric vehicle or $1,000 for a used one. It also offers up to $1,000 for the purchase of a new plug-in hybrid vehicle or $750 for a used one.