Which EVs and Buyers Are Eligible for the Used Tax Credit?

Which EVs and Buyers Are Eligible for the Used Tax Credit?

It’s a good time to buy a used electric vehicle, especially with the federal government giving you up to $4,000 for a down payment. Nearly all makes and models of used electric vehicles qualify, but the $25,000 price limit and other state sales standards apply. And if you’re not ready to switch to a fully electric vehicle, most plug-in hybrids also qualify for that amount.

A new change to the program for 2024 is that buyers of used electric and plug-in hybrid vehicles from dealers will be able to get the tax credit at the time of purchase, instead of waiting to claim it on their tax return.

What Used Electric Cars Can You Buy for $25,000?

One reason it’s a good time to buy a used EV (but not so good to sell one) is because there are more options within the $25,000 price limit. Price cuts on new electric vehicles from Tesla and some other brands have caused used electric vehicle values ​​to fall. According to data, the average price of used cars overall fell 6.3% year over year through April 2024, but the average price of used electric cars fell 20.2%.

According to report, 3,760 electric vehicles listed under $25,000, including 30 more hard-to-find PHEVs. These include used Chevrolet Bolt EVs and EUVs and Nissan Leaf hatchbacks that meet model year and price limits, as well as Tesla Model 3 and Model S sedans, Hyundai Kona EV, and Jaguar I-Pace luxury SUVs. Other suitable examples for sale on Cars.com include the BMW i3 (with or without range extender engine), Volkswagen ID.4, Mustang Mach-S, Hyundai Ioniq EV, and Kia Niro EV.

How to qualify your vehicle

Because the Clean Used Car Credit is a government tax program, there are of course many more rules, but they are much simpler than the complicated assembly and sourcing restrictions that allow for a credit of up to $7,500 for a new EV or PHEV. While the new vehicle rules have shortened the list of eligible new cars for 2024, used car loans only apply to EVs and PHEVs (almost all) with a battery capacity of 7 kilowatt-hours or more, as long as the vehicle is no more than two years old in model year prior to the calendar year it was purchased (currently 2022 and newer models). You can find a state-by-state list of plug-in (and fuel cell) vehicles that qualify for used car loans here.

In addition to these battery size and age requirements, there are a few other rules:

  • The contract price of the car and all fees, excluding taxes and proof of ownership, cannot exceed $25,000. (Theoretically, the 2022 Mercedes EQS EV qualifies, but you’d be lucky to find one for $25,000.)
  • The credit is 30% of the sales price, up to a maximum of $4,000 (for example, a $10,000 car would get one for $3,000).
  • The vehicle must not have been transferred to a new owner after August 2022 (the start of the used car program).
  • An EV or PHEV must be purchased from a licensed dealer registered with the IRS. Starting in 2024, dealers must report the sale to the IRS, verify that the vehicle’s vehicle identification number is legitimate, and provide the buyer with a copy of those documents. The IRS recommends that buyers get this verification before completing the purchase.

Which buyers are eligible?

One of the goals of used car loans for EVs and PHEVs is to allow less affluent buyers to purchase EVs. Therefore, there are income limits for buyers to qualify for financing.

  • The buyer’s modified adjusted gross income for the current or prior year is limited to $75,000 for an individual, $150,000 for a joint income earner, and $112,000 for a head of households.
  • The buyer must be an individual not listed as a dependent on someone else’s tax return and must purchase the vehicle for use, not for resale.
  • The buyer must not have claimed the used car tax credit in the three years prior to the current purchase.

The credit can be claimed at the time of purchase or later when you file your tax return, but there is one important advantage to claiming it at the time of purchase: the IRS says you can keep the full amount, even if your tax liability for the year is zero.

If you wait until you file your tax return to claim it, you can’t get a credit for more than the amount listed on the bill. If your vehicle qualifies for a $4,000 credit, but you only owe $3,000 in federal taxes for the year, you’ll “lose” the extra $1,000 you don’t need, and the IRS won’t send you a check. Keep in mind, though, that if you claimed the credit on a purchase and your income is over the income limits, you’ll have to pay the credit back to the IRS.

What risks are there with used electric car batteries?

Buying a used car comes with some risk in exchange for a lower price. And when you buy a used electric car, you also get a used battery. If this fails, it could cost you more than the car is worth. However, there is evidence. So far, the risk of the battery failing completely is very low. In any case, the defect may be covered by the battery warranty. Most of these used electric cars still have several years of warranty, compared to at least 8 years or 100,000 miles for new cars. In particular, many of the used Volts for sale have mildly damaged batteries with several years of warranty remaining, since a manufacturing defect caused a major recall, battery replacement, and an extended warranty of 8 years or 100,000 miles.

Although unlikely to be defective, used electric car batteries will lose capacity (and range) over time and with use. Some warranties offer fallback coverage, usually 70-75% of the original capacity during the warranty period, but some don’t. Either way, it’s important to check the condition of the battery before you buy, rather than focusing on mileage. You can get a vehicle battery health report from a site like Recurrent, or check for yourself by charging it to 100% and comparing the range on the vehicle’s gauge to the original EPA rating during a test drive. It may not be exact, but it’s a good indicator.

But the most important thing to know about a used electric vehicle’s range is whether it meets your needs. The shorter range may be sufficient for low-mileage city driving or as a second car, but it will also be cheaper.

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