Maximizing Benefits: Opting for a Used EV Tax Credit

May 28, 2024 10:49 PM EDT

BUSY STREET IN TROPICA TOWN AT NIGHT — (Photo : PEXELS/Maria Orlova)

In 2024, a considerable selection of new electric vehicles remains eligible for $7,500 EV tax incentives. The inception of new tax credits on January 1, 2023, marked a beginning for both new and pre-owned vehicles. This article will share compelling reasons why opting for a used EV tax credit could be advantageous compared to choosing a new one.

Why Pick Used EV Tax Credit

Potential buyers looking at a pre-owned electric vehicle (EV) priced under $25,000 may be eligible for a tax credit of up to $4,000. This Clean Vehicle tax credit applies to purchasers meeting specific federal income thresholds, though it entails additional conditions such as purchasing from a second-hand car dealer.

While the updated criteria have extended the $7,500 federal tax credit for new EV acquisitions, the stringent conditions significantly restrict the range of eligible electric vehicles. During this period, exploring the option of purchasing a used EV could be beneficial to leverage the enhanced federal tax credit of up to $4,000.

According to Forbes, if the common saying that a car depreciates by 20% upon leaving the dealership holds true, a new vehicle would only need to cost over $17,501 to be a more advantageous option in the secondary market, factoring in the $4,000 federal tax credit.

Consequently, there are currently no newly released electric vehicles that would offer better value with the new EV credit-assuming reasonable upkeep needs for a second-hand model. In essence, the growing availability of used EVs, combined with the federal tax incentive, offers consumers a chance to acquire an economical and environmentally conscious vehicle.

According to Popular Science, electric vehicle prices have decreased since 2008, when Tesla introduced its initial model, the Roadster, priced at $109,000. However, they remain prohibitively high for numerous Americans.

It also highlights a recent survey conducted by online automotive marketplace Edmunds revealed that 47% of prospective EV purchasers aim to limit their spending to $40,000 or less on an electric vehicle, a benchmark that few EVs in the U.S. currently meet. Used EVs priced under $25,000, especially those qualifying for the tax credit, are in high demand and are selling rapidly, as noted by Najman.

If an opportunity arises to acquire one, prompt action is advisable. Ultimately, individuals should select a pre-owned EV based on their individual circumstances and preferences. According to EV analyst Dylan Khoo from ABI Research, the majority of electric vehicles are equipped with a warranty that spans eight years or 100,000 miles, whichever occurs first.

Within this time, if the battery of of a used EV experiences issues, the manufacturer will provide a replacement. In many cases, this policy also applies if the battery's capacity falls below a specified threshold, such as 70% for Tesla vehicles.

Due to the relative newness of the market, numerous used EVs remain within the warranty period. Nonetheless, it is advisable to assess the condition of the battery in any vehicle under consideration.

How to Be Eligible for $4000 Tax Credit

As per The Ascent's report, tax credits for electric vehicles (EVs) when applied to pre-owned cars could potentially offer a more advantageous proposition compared to new purchases. Eligible buyers can avail of an EV tax credit equivalent to 30% of the selling price (capped at $4,000) when acquiring a qualifying used EV.

The cost of used EVs has notably decreased over the last year, making many recent model-year EVs attractive options with potentially low mileage, remaining battery warranty coverage, and offering excellent value for your automotive investment.

Electrek reported that under the revised Inflation Reduction Act signed by President Biden, federal tax incentives have been prolonged with updated advantages specifically tailored for the acquisition of pre-owned electric vehicles. The eligibility is contingent upon meeting specific requirements outlined by the IRS.

Commencing on January 1, 2023, individuals purchasing a qualified pre-owned electric vehicle (EV) or fuel cell vehicle (FCV) priced at $25,000 or below from an authorized dealer may qualify for a tax credit designated for pre-owned environmentally friendly vehicles as stipulated in the Internal Revenue Code Section 2.