Buying a new or used electric car could save you up to $7,500 right when you buy, but it comes with big caveats

The offers and details on this page may have updated or changed since the time of publication. See our article on Business Insider for current information.

Affiliate links for the products on this page are from partners that compensate us (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate tax products to write unbiased product reviews.

• I bought a used plug-in hybrid last year, which saved me $4,000 on my taxes.
• If you buy a new EV now, you can get your $7,500 savings instantly — but fewer cars are eligible.
• You can still get the full $4,000 with a used EV, and you get the savings up front.

In 2023, I bought a used plug-in hybrid so that I could earn a $4,000 tax credit when I filed my taxes. I was happy with my car, and I was able to get the full value out of the tax credit, but it was also a complicated process.

Thankfully, it's a lot less effort to get a tax credit when you buy an electric vehicle or a plug-in hybrid now — as long as you buy the right car and know all the requirements before you get started. The good news is that you can instead just get an immediate rebate on your purchase. The bad news is that your selection of eligible cars has gone down.

I had to go searching for the tax forms I needed

I've always opted to file my own taxes with tax software instead of going to an accountant; while I've always had a few unusual sources of income (such as the $650 I made selling a Lego set on eBay a few years ago), I've never run into anything that wasn't one of the standard suggested options when filing my taxes.

However, when filing my taxes this year, I found myself at a loss when it came time to tell the IRS about my car. It turned out that the form I needed was buried deep in a list of dozens of miscellaneous forms that the tax software I was using didn't think the average person was likely to need.

Naturally, I was more than a bit hesitant about the whole process — just about every tax filing program out there is full of reassuring "don't worry, we know what we're doing" messages, so it was more than a bit bewildering filling in that I actually needed an extra $4,000 over the relatively small refund that it had calculated.

My tax return was accepted without any issues, and I got my refund relatively quickly, but I certainly wouldn't have minded an easier process — thankfully, for many buyers, that's exactly what they'll get now.

You can get your tax credit as soon as you buy your car

The rules for getting a tax credit on an electric car changed at the beginning of the year . Now, instead of having to file your taxes months later and wait for the IRS to give you the money you're owed, you can simply get the money as a discount when you purchase your car — which is up to $7,500 for a new electric car.

There's a good chance your dealership will already know about the updated rules if it sells electric cars, but put simply, when you buy your car, the federal government will immediately send your dealership the portion of the cost that you're saving.

Of course, it's important to remember that the tax credit comes with income requirements, so make sure you know that you'll really be able to get the full value of the credit when you buy it — otherwise, you may end up having a big tax bill later on down the road. You still need to fill out the tax form for your purchase regardless — and keep in mind that if your state has its own tax credit, the process might be different for that portion.

The list of eligible cars has shrunk significantly

One requirement that has grown more strict over the past few years has been the rules regarding where your car (and its battery) are manufactured. In order to get the highest possible tax credit, you'll need to select from a relatively small number of cars — many electric cars that are assembled in the U.S. nevertheless have batteries that are manufactured elsewhere, and those cars are only eligible for half as much.

If a $3,750 tax credit for a new electric car doesn't sound as appealing, you can still get the full $4,000 that the IRS offers for used EVs and plug-in hybrids . The list of eligible cars is far greater — you do need to make sure you're buying a car that's less than $25,000, which will limit your choices somewhat, but depending on your budget, that might be totally fine. Just like with buying a new car, you can now get the full amount of your tax credit up front.