Do hybrid cars qualify for a tax credit?

Yes—plug-in hybrid electric vehicles (PHEVs) can qualify for tax credits in the United States if they meet federal and state rules, but conventional (non–plug-in) hybrids generally do not qualify for the federal new clean vehicle tax credit. Below is a clear breakdown of how eligibility works in 2025, what’s changed, and how to verify and claim any available incentives.

What counts as a “hybrid” for tax purposes?

Not all hybrids are treated the same. Incentives hinge on how the vehicle is powered and whether it plugs in to charge.

• Conventional hybrid (HEV): A gasoline engine plus a small battery that self-charges through braking; no charging port. Examples include many “hybrid” trims across brands. These typically do not qualify for the federal new clean vehicle credit.
• Plug-in hybrid (PHEV): A gasoline engine plus a larger battery (charged by plugging in) that can drive some distance on electricity alone. These may qualify for federal and state incentives if specific requirements are met.
• Battery electric vehicle (BEV): Fully electric with no gasoline engine. These are eligible under the same clean vehicle tax credit framework as PHEVs, subject to the same rules.

Understanding which category your car falls into is the first step—only PHEVs and BEVs are in play for the main federal credit on new vehicles.

Federal tax credits in the U.S. (2025)

New Clean Vehicle Credit (Internal Revenue Code §30D)

The federal new clean vehicle credit is worth up to $7,500 for qualifying new PHEVs and BEVs. Eligibility depends on vehicle, buyer, and battery sourcing requirements. As of 2025, rules are tighter due to supply-chain restrictions.

• Vehicle type: Must be a new PHEV or BEV with a battery capacity of at least 7 kWh and a gross vehicle weight rating under 14,000 lbs.
• Final assembly: Must occur in North America (U.S., Canada, or Mexico).
• MSRP cap: $55,000 for cars; $80,000 for SUVs, vans, and pickups (based on IRS/EPA classification and excluding destination charges).
• Income cap: Modified AGI at or below $150,000 (single), $225,000 (head of household), or $300,000 (married filing jointly). You can use the current or prior tax year to qualify.
• Battery sourcing: The $7,500 is split into two $3,750 parts—one for meeting critical minerals sourcing and one for battery component sourcing. Foreign Entity of Concern (FEOC) restrictions disqualify vehicles with banned content.
• FEOC rules:
  

  • 2024: No FEOC-made battery components allowed.
  • 2025: No FEOC-sourced critical minerals allowed. This further narrows which PHEVs/BEVs qualify.

• Manufacturer cap: No per-manufacturer sales cap (the old 200,000-unit cap no longer applies).

In practice, some PHEVs qualify for the full $7,500, some for $3,750, and many will not qualify at all—especially after the 2025 FEOC mineral rule. Always verify a specific VIN before you buy.

Used Clean Vehicle Credit (IRC §25E)

Buying used? Certain used PHEVs and BEVs can qualify for a separate credit of up to $4,000, regardless of where they were originally assembled or battery sourcing details.

• Credit amount: 30% of the sale price up to $4,000.
• Vehicle requirements: At least 7 kWh battery, model year at least two years older than the purchase year, bought from a licensed dealer, sale price ≤ $25,000.
• Buyer requirements: Income caps are lower—≤ $75,000 (single), $112,500 (head of household), $150,000 (married filing jointly).
• First resale rule: The car must not have been previously resold after Aug. 16, 2022 and claimed under this used credit.
• Frequency: You can claim the used credit only once every three years.

The used credit is often easier to qualify for because it does not require North American final assembly or complex sourcing tests—just be sure the vehicle is sold by a dealer and meets the age and price caps.

Leasing and the Commercial Clean Vehicle Credit (IRC §45W)

Leased vehicles are usually treated differently: the lessor (often the finance arm of the automaker) can claim the commercial credit and may pass savings to you through lower lease payments—even when the car doesn’t qualify under §30D.

• Who claims: The leasing company (lessor) claims §45W and may apply the benefit to your lease.
• Amount: Up to $7,500 for vehicles under 14,000 lbs (calculated as a percentage of cost), potentially more for heavier vehicles.
• Fewer restrictions: §45W doesn’t use the consumer income or MSRP caps and is not limited by the same FEOC/battery sourcing rules.
• No guarantee: Pass-through of the incentive is at the lessor’s discretion—ask to see the applied incentive in writing.

If you’re flexible on buying vs. leasing, a lease can sometimes deliver an equivalent or better net benefit on models that don’t meet the strict §30D rules.

State, local, and utility incentives

Beyond federal credits, many states and utilities offer rebates or tax incentives for PHEVs and BEVs. Conventional (non–plug-in) hybrids rarely receive state-level incentives, but policies vary and change frequently.

• State rebates/credits: Vary by state, often focused on BEVs and PHEVs. Some programs are income-based or have MSRP caps.
• Utility rebates: Many electric utilities offer charger installation rebates or off-peak charging discounts; a few offer vehicle rebates.
• Perks: HOV lane access, reduced registration fees, or emissions-testing exemptions in some jurisdictions.
• Where to look: Check your state energy office, your utility’s EV page, and the DSIRE database at dsireusa.org.

Because these programs change quickly and funding can open or close, verify current eligibility and funding status before you buy.

How to verify and claim a credit

Verify a specific car before purchase

Always verify eligibility at the VIN level and confirm your own income and price caps before you commit.

• Check current eligibility lists at the U.S. Department of Energy’s site: fueleconomy.gov/feg/taxcenter.shtml.
• Confirm final assembly, MSRP classification (car vs. SUV), and battery sourcing status for the exact trim and model year.
• Ask your dealer for the IRS time-of-sale report confirming the vehicle qualifies (required if you transfer the credit at purchase starting in 2024).
• Verify your MAGI against IRS caps and ensure the vehicle’s MSRP doesn’t exceed the relevant limit.
• If buying used, confirm dealer sale, price ≤ $25,000, model year age, and that you haven’t claimed a used credit in the prior three years.

These checks protect you from surprises at tax time—especially given 2025 FEOC mineral rules that disqualify many models.

Claiming or transferring the credit

Since 2024, you can transfer the new or used clean vehicle credit to the dealer at the point of sale, effectively turning it into cash or a down payment, subject to eligibility.

• Point-of-sale transfer (recommended): Dealer must submit a time-of-sale report via the IRS Energy Credits Online system. You attest to income eligibility. The amount reduces your price upfront. If your income proves ineligible when you file, you must repay the credit.
• Tax filing (if not transferred): Claim the credit on IRS Form 8936 for new vehicles or per IRS guidance for used vehicles. For non-transferred credits, §30D is nonrefundable and limited by your tax liability.
• Records to keep: Dealer time-of-sale report, purchase/lease agreement, VIN, battery capacity details, and any point-of-sale credit documentation.
• Leases: If leasing, confirm in writing how much incentive the lessor is applying to your monthly payment or due-at-signing costs.

Transferring at the dealership simplifies the process and makes the benefit immediate, but make sure you truly meet the income and vehicle criteria to avoid repayment.

Frequently asked questions

These quick answers address common gray areas that trip up buyers.

• Do conventional hybrids (HEVs) qualify for the federal new clean vehicle credit? Generally, no. They lack a plug and typically do not meet the 7 kWh battery requirement.
• Do PHEVs qualify? Many do, but only if they meet North American final assembly, MSRP and income caps, and battery sourcing rules. In 2025, fewer models qualify because of new critical mineral sourcing restrictions.
• Is there a federal credit for used PHEVs? Yes—up to $4,000 if the car is at least two model years old, costs ≤ $25,000, and you meet income and other rules.
• What if I lease? The finance company may claim the commercial credit and pass savings to you. Ask for documentation of any incentive applied.
• I’m outside the U.S.—do these rules apply? No. Incentives vary by country and region; check your national and local authorities.

If you’re unsure about a specific model or configuration, rely on the official fueleconomy.gov listings and your dealer’s IRS time-of-sale documentation.

Summary

In the U.S., plug-in hybrids can qualify for significant incentives, but conventional (non–plug-in) hybrids generally cannot claim the federal new clean vehicle credit. For 2025, stricter battery sourcing rules mean fewer new PHEVs qualify for the full $7,500, though some still do, and used PHEVs may be eligible for up to $4,000. Leasing can unlock benefits even when a model doesn’t meet §30D. Always verify eligibility for the exact VIN, confirm your income and price caps, and, when possible, transfer the credit at the point of sale for an instant price reduction.

Do hybrid cars qualify for tax credits?

Some all-electric and plug-in hybrid vehicles qualify for a $3,700 to $7,500 federal tax credit. Many states also offer additional incentives for purchasing new EVs. Find tax credits and incentives in your state.

Is there a tax write-off for a hybrid?

Federal Tax Credit
Federal tax credits are available for the purchase of all-electric and plug-in hybrid vehicles. The tax credits are up to $7,500. Please note: Sales or use tax is due on the total selling price of the vehicle.

How do I claim my $7500 hybrid tax credit?

Use Form 8936 to claim either the Qualified Plug-In Electric Drive Motor Vehicle Credit or the new Clean Vehicle Credit. The Qualified Plug-In Electric Drive Motor Vehicle Credit and the new Clean Vehicle Credit are each worth up to $7,500.