Do New Tesla Owners Qualify for the EV Tax Credit?

You're doing good for the environment with your new Tesla, but can it also do good for your wallet next tax season?

Nicolle Monico
Updated 16 March 2022
Do New Tesla Owners Qualify for the EV Tax Credit?
Sections on this page
  1. What is the Electric Car Tax Credit ?
  2. Does the Electric Car Tax Credit Expire? 
  3. Do New Tesla Owners Qualify for the EV Tax Credit?
  4. New Legislation Regarding Electric Vehicles 
  5. What Would Change for New Tesla Owners? 
  6. Expect More Changes

If you’re eying a new Tesla this year or recently bought one, you’re likely wondering if you’re eligible for the electric vehicle tax credit to lower the cost of its hefty price tag. Read more to learn about the current EV tax credit, whether you can claim it this year, and what implications the Build Back Better Act could have for new Tesla owners. 

What is the Electric Car Tax Credit ?

As a way to combat climate change and protect the environment, Congress established the plug-in electric drive motor vehicle credit to encourage consumers to purchase electric vehicles (EVs) instead of gas-powered cars.

The tax credit is a short-term incentive ranging from $2,500 to $7,500 for qualified EVs and plug-in electric vehicles (PHEV). To claim the non-refundable credit, you must have a federal tax liability in the year of purchase and file Form 8936. 

Does the Electric Car Tax Credit Expire? 

Yes, the EV tax credit does expire. When a manufacturer sells 200,000 total qualifying vehicles, the electric car tax credit phases out.

Once that happens, it gets cut in half in the second calendar quarter to $3,750 and continues to get cut after an automaker reaches the 200,000-car threshold until the end of the third calendar quarter.

This continues to occur for the next two quarters to $1,875 and goes on until the allowable credit is $0 one full year later or four calendar quarters after the phase out begins.

Do New Tesla Owners Qualify for the EV Tax Credit?

Unfortunately, Tesla and General Motors have both reached the 200,000-car milestone, which means that new Tesla owners are not eligible for the electronic car tax credit.

For Tesla, this occurred in July 2018 which triggered the 50% credit phase out which began January 2019 until the end of June 2019. It was then reduced to 25% from July 2019 through December 2019 and was completely phased out to $0 for new buyers after January 1, 2020.

New Legislation Regarding Electric Vehicles 

In the fall of 2021, the House Ways and Means Committee began rewriting Biden’s Build Back Better bill, a $3.5 trillion reconciliation legislation which includes additional incentives for EV owners.

Among some of its changes, the Build Back Better Act which would increase the existing federal EV incentive to $12,500. If passed, individuals could qualify for the additional $5,000 if:

  • Your EV was made in the US with a union workforce ($4,500)
  • At least 50% of the battery components in your EV are made in the US ($500) 

On November 19, 2021, the bill passed the House of Representatives but still needs to be passed in the Senate where there is firm opposition from Senators Joe Manchin and Kyrsten Sinema.

What Would Change for New Tesla Owners? 

The bill would also have implications for new Tesla owners if passed. Some of those changes are discussed below:

New Teslas Would Be Eligible for the EV Tax Credit

Along with the above EV tax credits, most Teslas would qualify for either an $8,000 tax credit (in the House version) or $10,000 (in the Senate version) if purchased after December 31, 2021.

However, Models S, X, and 3 Performance would not qualify for the tax credit in both versions. And, in both the House and Senate versions, Tesla cars would not be eligible for the additional credits ($4,500 and $2,500, respectively) since Tesla employees are not unionized.

The EV Tax Credit Becomes Refundable

Both the Senate and House versions would make the EV tax credit refundable, regardless of income level. Previously, anyone receiving the tax credit would be subject to income limitations.

Elimination of the 200,000 Car Threshold

If the Senate version passes, it would eliminate the 200,000 cap on cars eligible for tax credits on vehicles purchased after March 24, 2021. This could mean that Teslas bought after May 24, 2021, would be eligible for the up to $7,500 tax credit.

Buyers would receive the credit when they file taxes in 2022.

Changes in the Phase Out Credit

In the Senate’s version of the phase out credit, it wouldn’t begin until electric vehicles accounted for more than 50% of annual sales of new cars in the U.S. In the House, it would begin after December 31, 2031.

Only 1.8% of new cars sold nationally were EVs in 2020, so it could take anywhere from 10-20 years to reach the 50% threshold.

Expect More Changes

With the bill now in the Senate, changes may be made to the Build Back Better Act and it will need to undergo a process of legislative reconciliation between both versions. So as of now, nothing is set in stone and new Tesla owners are still not eligible for the tax credit.