Tesla Vehicles Now Qualify For Used EV Tax Credit, But Good Luck Using It

In a significant development for electric vehicle enthusiasts and sustainability advocates, the U.S. Internal Revenue Service (IRS) has extended the federal EV tax credit benefits to used Tesla cars. While this change was made possible by the Infrastructure Investment and Jobs Act signed in November 2021, Tesla EVs did not feature in the initial list of EVs that qualified when the reformed EV federal tax credit was launched in early 2023.

This was because Tesla had apparently "forgotten" to file the necessary paperwork with the IRS. The company seems to have fixed this issue, as used Tesla cars — as of August 7, 2023 — are included in the list of vehicles that qualify for used EV tax credits. Interestingly, the updated list of cars that qualify for this tax credit can be found on the EPA's website — unlike the older list, hosted on the IRS website.

The used EV tax credit allows qualified buyers to claim up to $4,000 on the purchase of a used electric vehicle, making these environmentally-friendly cars more affordable to a broader spectrum of consumers. The move is expected to drive demand for used Tesla vehicles and stimulate the secondary EV market.

However, a major catch with this is the fact that EVs need to be priced under $25,000 to qualify for this tax credit. Given how difficult it is for anyone to find a used Tesla for less than $25,000, the chances of someone actually getting to use this tax credit may be rare.

While the used EV tax credit looks good on paper, there are multiple eligibility-related concerns that potential buyers must be aware of before opting in. Besides the fact that the EV — in this case, Tesla — needs to be priced under the $25,000 mark and be sold via a certified dealer, it also needs to meet several age-related requirements. 

For example, the used vehicle should be at least two years old. Other notable requirements include a battery capacity of at least 7 kilowatt hours, a gross vehicle weight rating of less than 14,000 pounds, and being manufactured by a "qualified" manufacturer.

In addition, the buyer of the used EV must also meet specific eligibility criteria. To begin with, the user must confirm that the used EV will be purchased for their use and not for resale. The vehicle should also be predominantly used in the U.S. Eligible buyers also cannot have an adjusted gross income above $300,000 for married couples (who file jointly for the tax credit), $225,000 for heads of households, and $150,000 for all other filers.

Once the IRS ensures that a used EV buyer meets these eligibility requirements, they can take advantage of up to a 30% tax credit on the vehicle's sale price (capped at $4000).