Are You Eligible for an EV Tax Credit?

EV tax credits reduce the amount of income tax you owe to the federal and state government. They are applied when you do your taxes the year following an EV purchase.

It’s important to understand that in most cases, EV tax credits do not reduce the purchase price of an EV at the dealership. The incentive comes in the form of a reduced tax bill and possibly a tax refund depending on your personal tax situation. In 2024, EV shoppers will have the option to apply their federal tax credit as a rebate instead, providing immediate savings off the purchase price of an EV.

Note: the Colorado Energy Office does not provide tax advice. Please see a licensed tax professional to understand if you are eligible for any tax credits. The Colorado Department of Revenue Taxpayer Helpline can be contacted here.

If you pay taxes in Colorado, you’re eligible for a state tax credit of $5,000 with the purchase or lease of a new EV with an MSRP up to $80,000. Lease agreements must have an initial term of at least two years. Beginning January 1, 2024, EVs with an MSRP up to $35,000 will be eligible for an additional tax credit of $2,500. If you do not pay taxes in Colorado, you’ll need to check with the state where you do pay taxes to see what EV incentives offered.

As of April, 2023, to receive the full federal EV tax credit of up to $7,500 for new EV purchases, there are several qualifications that you must meet. These include personal or household income, vehicle MSRP caps based on the type of vehicle you’re interested in, vehicle production requirements based on where the vehicle and its components are manufactured and assembled, and battery component and critical minerals sourcing requirements from countries in which the United States has a Free Trade Agreement with.

Vehicles that meet all requirements except for battery sourcing and component requirements may be eligible for half of the federal tax credit up to $3,750.

EV leases are also eligible for the $7,500 EV tax credit, and as of January, 2023, leased vehicles are not required to meet the qualifications listed above for EV purchases. That said, because the vehicle is still owned by the dealership, you must ask the dealer to pass along the EV tax credit to you in the form of a rebate or reduction in sales price. Many dealerships do pass along this cost savings to their customers, so don’t hesitate to ask if you are interested in an EV lease.

Used EVs are now also eligible for a tax credit up to $4,000 or 30% of the purchase price and come with their own set of requirements as well.

• Coloradans are eligible for up to $5,000.
  
  In Colorado, the $5,000 state EV tax credit for new EV purchases or leases will be paid whether you owe that much tax or not. New EV lease agreements must have an initial term of at least two years. Beginning January 1, 2024, EVs with an MSRP up to $35,000 MSRP will be eligible for an additional tax credit of $2,500.
• New EV purchases may be eligible for a federal tax credit up to $7,500.
  
  To receive the full $7,500 federal EV tax credit for new EV purchases, you must meet the specified requirements and have a federal tax burden for that year of $7,500 or more.
• EV leases may also be eligible for a federal tax credit up to $7,500.
  
  Under the commercial clean vehicle credit, dealerships are eligible for the tax credit on EV leases. Some may choose to pass it along to their customers.
• For the first time, used EVs are eligible.
  
  Used EVs that are purchased from dealerships and are under $25,000 may now be eligible for a federal tax credit up to $4,000.

To qualify for the full federal EV tax credit amount in 2023, at least 50% of the components in an electric battery must be made in North America, 40% of minerals used to make the battery must come from a domestic source or from countries that have trade agreements with the U.S, and the vehicle must have final assembly in North America.

The U.S. Department of Energy has created a list of eligible vehicles to help you determine whether they qualify for part or all of the federal tax credit.

Some utilities in Colorado also offer rebates towards the purchase of an EV or towards an at-home charging station.

• Xcel Energy Electricity Customers
  
  Xcel Energy electricity customers in Colorado who are income qualified are eligible for rebates of $3,000 off a used EV or $5,500 off a new EV. To learn more, visit Xcel Energy’s rebate page.
• San Isabel Electric Association Customers
  
  San Isabel Electric Association customers may be eligible for a rebate of $500 with the purchase of an electric vehicle. Visit the SIEA website for more information.
• Black Hills Energy Customers
  
  Residential electricity customers who are income qualified may receive rebates of up to $3,000-$5,500 towards the purchase of a new or pre-owned EV. Visit the Black Hills Energy website for additional information.