Have you considered going electric with your next car purchase? As gas prices yo-yo, the stability of an electric vehicle (EV) becomes appealing. But with most electric models still priced higher than gas-powered cars, cost remains an obstacle for many buyers. What if you could knock $4,000 off a used EV‘s sticker price at the dealership?
The recently passed Inflation Reduction Act introduced sweeping changes to EV tax credits for new purchases. Tucked inside is also the first-ever federal incentive aimed at used EV buyers. I‘ll explain everything you need to know to figure out if you qualify and how to use this credit to get into an EV.
Used EV Tax Credits: How Are They Different?
Up until now, EV tax credits only applied to new vehicle purchases. The former system offered up to $7,500 back if an EV met certain requirements around battery size and manufacturer sales caps.
The Inflation Reduction Act replaces that with a new Clean Vehicle Credit. For new EVs, it uses income limits and sticker prices to determine if you‘ll get the full $7,500 or a partial credit. It also eliminates the caps that made Teslas and GM EVs ineligible before.
So how are used EV tax credits different?
- Up to $4,000 available, instead of $7,500
- Price of used EV must be $25,000 or less
- Credit calculated as 30% of used EV purchase price
- Income eligibility thresholds are lower than new EV credit
- Sale must be made by a licensed dealer, no private sales
- Vehicle can only get credit once as used, on first post-lease/trade-in sale
With used car prices soaring and new EVs scarce, this credit aims to put cleaner, affordable electric transport within reach. But does the reality line up with that goal?
The Difficulty of Finding a Qualifying Used EV
This credit seems simple enough – buy a used EV for under $25,000 and get 30% of that value off your taxes, up to $4,000. But we have to consider what‘s happened in the used car market recently.
According to data from Recurrent Auto, the average price of a used EV has skyrocketed to over $40,000. Just last year it was $10,000 less. Why? The pandemic and supply chain issues have severely constrained production of new cars. With demand still very high, used car prices are climbing sharply.
| Year | Average Used EV Sales Price |
|---|---|
| 2019 | $16,157 |
| 2021 | $30,054 |
| 2022 | $40,714 |
And that‘s the average price across all used EVs for sale. If we filter down to those under the $25,000 limit, it‘s only around 18% of available inventory. Basically, 1 in 5 used EVs are even eligible for this $4,000 credit due to pricing. Finding one is going to take some dedicated searching.
Making matters worse, very few used EVs were manufactured in North America in earlier model years. That assembly stipulation echoes the requirements for new EVs to qualify for tax credits. Unfortunately most older EVs won‘t meet it.
According to CARBUZZ analysis, only 8 used EV models are likely to qualify when this used credit goes live on January 1, 2023. They estimate meeting both the price limit and North American assembly rules leaves only the:
- Cadillac ELR
- Chevy Volt
- Chevy Bolt
- Ford Focus Electric
- Ford C-Max Energi
- Ford Fusion Energi
- Fiat 500e
- Nissan Leaf
See the discrepancy? The intention was to make cheaper used EVs accessible for more middle-income buyers. But with sky-high used car prices and restrictive assembly rules, very few qualify. Even those that do qualify are mostly plugins or very small commuter EVs, often not the ideal fit for many American families.
Action Plan: How Can I Get This Used EV Tax Credit?
If you‘ve followed along this far, I bet you‘re wondering if it‘s even possible to buy one of these qualifying used EVs. For most average car shoppers, it will be difficult with the strict parameters in place right now. But say you spot one of those unicorn qualified used EVs at your local dealership…here are the steps to actually get that $4,000 off at tax time:
Step 1: Confirm you meet the income thresholds
- Single filer: adjusted gross annual income below $75,000
- Head of household: adjusted gross annual income below $112,500
- Married filing jointly: adjusted gross annual income below $150,000
Step 2: Verify the used EV‘s eligibility
- Model year must be at least 2 years old (so 2021 or earlier once rule activates in 2023)
- Manufactured in USA or Canada
- Listing price below $25,000
- Being sold used by licensed dealer, not private individual
- First time it‘s been sold on used market after initial purchase
Step 3: Complete purchase process
- Finalize sale by specified deadline (end of 2032)
- Receive instant discount up to 30% of price or $4,000 maximum
- Credit flows to selling dealer, subtracts from your negotiated price
Step 4: Claim the one-time use credit
- Can only get 1 used EV credit every 3 years
- Wait to file taxes until year following purchase
- Claim full discounted price paid on tax return
——
I hope walking through the specifics gives you a better sense of who can realistically tap into this used EV tax credit opportunity. With some luck and the right timing, an affordable used EV can move within reach thanks to this new incentive. And as more EVs get manufactured here in North America in coming years, options will likely expand.
For now, temper expectations, scour those used car sale listings, and don‘t hesitate to inquire about an EV trade-in discount with your preferred dealer. The used electric vehicle market is only getting hotter. This $4,000 off could make you one very happy early adopter!
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