This One Little Rule Change in 2024 Could Help You Save Big on Buying an EV

If you're thinking about buying an electric vehicle, there's a new rule in 2024 that makes it easier for you to save money. Starting from Jan. 1, 2024, electric vehicle (EV) buyers can get their EV tax credit applied at the point of sale by the dealership.

Let's look at what this new rule for EV tax credits means and how it could help people save money on buying EVs.

New 2024 rule: Get EV tax credits at the dealership

The federal government, as part of the Inflation Reduction Act, is offering EV tax credits for new or pre-owned electric vehicles. Depending on which car you buy, your new EV purchase could qualify for a $7,500 tax credit, and a used EV could get you a tax credit of up to $4,000 (or 30% of the sale price, whichever is less).

But unlike some tax credits, where you have to wait until you file your taxes to see the money, the EV tax credit is now -- in one important way -- easier to get. According to a new IRS rule, as of Jan. 1, 2024, the EV tax credit ("Clean Vehicle Tax Credit") must be approved and initiated at the time of sale of the vehicle. That means you can get your EV tax credit immediately upon buying your car, kind of like an instant rebate.

This new IRS rule makes it so much easier to get the EV tax credit because the dealer will file paperwork showing which tax credit your EV qualifies for, and you don't have to wait until you file taxes. The EV tax credit is applied to the price of your car purchase. And the dealership will help you understand which cars qualify for what amount of tax credits -- because the dealership has to sign up with the IRS and process the paperwork.

How EV tax credits work for new vehicles

Some of the EV tax credits can be complicated, especially for new EVs. As of 2024, not many new EVs qualify for the full $7,500 tax credit because that credit is only available for vehicles that had final assembly in North America and had battery materials sourced from the U.S. or certain U.S. trade partner countries. The car must have a maximum MSRP of

• $80,000 for pickup trucks, SUVs, and vans
• $55,000 for other electric vehicles

And your income (modified adjusted gross income) must be a maximum of $300,000 for married couples filing jointly, $225,000 for heads of households, and $150,000 for all other filers.

If you're confused about which cars qualify for a new EV tax credit, this new rule about instant tax credits at the dealership could help you because it's in the dealer's best interest to help you get the right amount of EV tax credit. And some car companies are offering generous dealer discounts that match the EV tax credit, even if their cars don't qualify. Since new EVs might have more expensive car insurance, getting a bigger discount on your new EV can be a good move for your finances.

For example, as of mid-January 2024, several automakers like Cadillac, Hyundai, and Kia were offering special incentives and discounts of up to $7,500 per electric vehicle. Even if your chosen EV doesn't qualify for the new EV tax credit, the car manufacturer or your local dealer might lower its prices to match it.

How EV tax credits work for pre-owned vehicles

The EV tax credit for used (pre-owned) cars is lower than the $7,500 limit for new EVs, but it might be easier to get and simpler to understand. To get a tax credit on a used EV, it doesn't matter where the car was made or where the battery parts came from. Instead, your ability to qualify for a used EV tax credit depends on:

• Your income (modified adjusted gross income): Your income must be $150,000 or less for married filing jointly, $112,500 for heads of household, or $75,000 or less for other filers.
• Price of the car: The EV sale price must be $25,000 or less.
• Make and model year: Your EV must be at least two years older than the current year. So the newest EVs that currently qualify are from model year 2022.

The used EV tax credit is for a maximum of $4,000 or 30% of the used EV's sale price, whichever is less. So if your used EV has a sale price of $10,000, you could get a $3,000 tax credit. If the used EV's sales price is $16,000, you could only get a $4,000 tax credit. These tax credits can help reduce the cost of ownership of an EV -- but make sure to get price quotes for insurance before committing.

Bottom line: Getting your EV tax credit as an instant discount at the dealership could be a valuable benefit when buying a new or pre-owned EV in 2024. It's more convenient now to get EV tax credits, even if not every vehicle qualifies. And some car companies are offering generous discounts on EVs that may match the new EV tax credit. Whether it's a tax credit or a big discount, the prices of EVs could be coming down in 2024. Before you buy an EV, check for price quotes from the best car insurance companies.