Important update: The new federal tax credit set up by the Inflation Reduction Act means this blogpost is out-of-date as of January 1, 2023. Check out our Rebates & Incentives page for the latest!

If you are looking to purchase an electric vehicle from Toyota, like the Toyota Prius Prime or the Toyota RAV4 Prime, you should know that the federal tax credit will soon start phasing out. The federal tax credit is capped at 200,000 electric vehicles (EVs) sold per manufacturer and Toyota is expected to reach this cap before June 2022. Here’s what this means if you’re in the market! 

What is the federal tax credit & its restrictions?   

The federal tax credit was put in place to foster EV adoption by incentivizing buyers.  The federal tax credit is up to $7,500, but the amount you can claim depends upon the battery size of the vehicle, the final vehicle assembly being in North America, and your personal tax liability. The final vehicle assembly in North America is a new addition to the federal tax credit requirements as of August 16, 2022 with the Inflation Reduction Act. Prior to the IRA, the Toyota Prius Prime and RAV4 Prime qualified for different federal tax credit amounts because of their different battery sizes (see table below.)  Now that the IRA is law, Toyota does not qualify for any tax incentives because Toyota vehicles do not do their final vehicle assembly in North America. 

Compare the Cars 

The below table was made prior to the enactment of the IRA. Prior to the IRA, manufacturers were allowed to sell 200,000 electric vehicle units before the tax credit started to phase out. Toyota hit the 200,000 limit this summer and the table below was made as a guide for folks interested in buying a Toyota EV.  If you bought your car previous to August 16, 2022, the table and federal tax credit still applies to your purchase.

Toyota Federal Tax Credit Phaseout 

The Cars 

Let’s talk about the vehicles that helped Toyota hit the 200,000 car cap.  

In 2012, Toyota came out with its first plug-in hybrid option, the Prius plug-in hybrid, which is now called the Prius Prime. The Prius Prime makes up the majority of the nearly 200,000 units sold. This current model of this popular hatchback has 25 miles of electric range and is a popular option for first-time electric vehicle buyers. The Prius Prime was eligible for $4,502 of the federal tax credit.

The Toyota RAV4 Prime came out in 2020 and was immediately popular. It has an electric range of 42 miles and is an SUV – two great things for the PHEV market. Like all cars, it has experienced inventory issues due to the chip shortage and demand is exceeding supply. The RAV4 Prime was eligible for the full $7,500 tax incentive.

The timing of this impending phase-out and IRA is truly unfortunate for Toyota since the company finally released its first battery-electric vehicle (BEV) in the United States called the bZ4X (MSRP $42,000). The bZ4X has an all-electric range of up to 252 miles and comes in either FWD or AWD. This car is not yet at the dealerships but is available for order on the manufacturer’s website.

Toyota bZ4X

In short... 

The Toyota RAV4 Prime, Prius Prime, or the new bZ4x are great electric options! Hopefully Toyota will move these models to its manufacturing facilities in the US so it can once again qualify for the federal tax credit.