Understanding Colorado’s electric vehicle tax credit

Have you seen more of those lightning bolt license plates around Colorado recently? They’re attached to electric vehicles (EVs)! Colorado is a leader in EV adoption; as of December 2024, Coloradans were purchasing EVs at a higher rate than any other state. By the end of 2024, nearly a third of new vehicles purchased in Colorado was an EV.

High EV adoption is the result of the state’s investment in improving our air quality and plays an important role in the Colorado Energy Office’s plan to reduce greenhouse gas emissions by 2050. The state encourages EV use by investing in robust EV charging infrastructure and by providing tax credits to individuals purchasing EVs. Taking federal and state tax credits into account, EVs can be among the most affordable cars in Colorado.

As we get into tax season, many new EV owners might be wondering – how do tax credits for EV purchases work? Who gets the tax credit, the EV’s buyer or the seller?

The credit for EV purchases and leases is called the Innovative Motor Vehicle Credit. The Department of Revenue published a detailed fact sheet explaining who is eligible for the credit and how to claim it. Below are a few key points:

• Tax credit dollar amounts change each year. The maximum tax credit for new EVs purchased in 2024 is $5,000, and the maximum tax credit for 2025 will be $3,500. Used EVs also qualify for tax credits, although they have lower dollar amounts.
• If your tax liability is lower than the credit amount, you will still receive the full credit as part of your tax return. For example, if your tax liability is $500 and you are eligible for the full $5,000 2024 tax credit, you will receive $4,500.
• EV purchasers and lessees are both eligible for the full tax credit.
• EVs must be titled and registered in Colorado to receive the tax credit.
• EV buyers and lessees can choose to let the car dealership or financing company claim their tax credit in exchange for a lower sale or lease price. To assign the tax credit, the buyer/lessee must sign an election statement (tax form DR-0618) when they purchase or lease the car.

To claim the Colorado Innovative Vehicle Tax Credit, fill out Form DR-0617 and file it with your income tax return forms. The Electric Vehicle Tax Benefits webpage from the Department of Revenue explains both state and federal clean vehicle tax credits.