The Internal Revenue Service updated the rules for electric vehicle tax credits again starting with the first day of 2024, bringing some good and bad news.

 

The bad news is that fewer vehicles are now eligible for federal tax credits, and even fewer are eligible for the maximum $7,500 credit.

 

But there’s good news, too. Many electric and plug-in hybrid models are still eligible for at least a portion of the full tax credit. Also, consumers can now get the tax credit applied to the purchase price of the vehicle at the time they buy it, rather than having to wait until they file their taxes. And, as before, if you lease, rather than purchase the vehicle, you can still enjoy the benefit of the tax credit even on vehicles that would not otherwise qualify.

 

Many states and even municipalities also offer their own incentives for electric vehicles and for the installation of home EV chargers. These IRS changes don’t impact on those incentives.

 

Even with electric vehicles being heavily discounted, as most currently are, in some cases tax credits are the only way to get any sort of incentive on an EV, said Ronald Montoya, consumer advice editor at Edmunds.com. Tesla, for example, does not negotiate on the sticker price.

 

“If you look at Tesla, which is one of the most popular EVs, it doesn’t [give] any discounts, so the tax credit is very important for Tesla buyers,” he said. “So, it just depends on the vehicle. But I think overall, they are a big incentive for people.”

 

The new rules have to do with where vehicle parts, particularly the batteries and battery components, were made. If these parts were made in China, the tax credit is reduced or even done away with entirely.

 

Many automakers are now building electric vehicle battery factories in the United States so, even if a certain model isn’t eligible for the full tax credit today, it could be in coming months or years as automakers change their parts supply chains.

 

Among the models still eligible for the full $7,500 EV tax credit, according to the IRS website, are the Ford F-150 Lightning pickup, the Chrysler Pacifica plug-in hybrid minivan, and various versions of the Tesla Model 3, Model Y, and Model X.

 

Some EVs and plug-in hybrids eligible for tax credits last year aren’t anymore, though, according to the IRS website. The list is liable to change, though, as more automakers complete application processes and alter their supply chains.

 

For instance, the Nissan Leaf was eligible for a $3,750 tax credit late last year but isn’t as of this week, according to the website. Likewise, Ford Mustang Mach-E owners who took delivery of their SUV last year could get a $3,750 tax credit, but that model isn’t currently listed as eligible in the new year. The Volkswagen ID.4 was eligible for the full $7,500 tax credit up until the end of 2023. It’s not currently listed as eligible for any purchase tax credit now, though.

 

Volkswagen spokesperson Mark Gillies said the German automaker is still in the process of submitting all the needed paperwork. The company is “optimistic” that all model year 2023 and 2024 ID.4s will, ultimately, be eligible.

 

Nissan said it is working with parts suppliers to meet the new requirements so that the Leaf could be eligible again in the future.

 

For some electric and plug-in hybrid vehicles, whether they are eligible for a tax credit and for how much could depend on the specific individual vehicle and its particular parts content. For that reason, the IRS website has a place to enter the individual vehicle identification number, or VIN, for the vehicle a customer is buying or considering.

 

Whether these new tax credit rules or last year’s rules, apply depends on when the vehicle was “placed into service,” to use IRS terminology. That means that, even if you signed the paperwork to purchase a vehicle in 2023 but won’t take delivery of the vehicle until this year, the new 2024 tax rules apply. So, you might not get the tax credit you could have gotten if you had the vehicle in your driveway before January 1. On the other hand, if you took delivery of the vehicle in 2023, the tax credit rules in force would still apply.

 

If you lease, though, you can get the benefit of the tax credit even on vehicles that were never eligible. That is because, if you lease, different – and laxer – tax regulations apply. Instead of going to you, though, the tax credit goes to the leasing company. But, in many cases, it’s passed along to the customers as a “lease incentive,” resulting in lower monthly payments.

 

Leasing is an excellent idea, anyway, when considering an electric vehicle, Montoya said. For one thing, EV technology is still changing rapidly, he said, so someone buying an EV today may want to upgrade to a new car with longer range or faster charging in a few years, anyway. Also, leasing helps reduce monthly payments, which are currently very high for vehicle purchases due to high interest rates.