Federal Tax Credits for the 2021 Toyota RAV4 Hybrid

If you buy a new 2021 Toyota RAV4 Hybrid, you’re eligible for a $3,750 federal tax credit, but don’t wait too long. It will be phased out in 2023.
Written by Jasmine Kanter
Reviewed by Kathleen Flear
Nov 9, 2022
Time is running out to claim the federal tax credit offered with every new 2021 Toyota RAV4 Hybrid: the remaining $3,750 credit will drop to $1,875 before disappearing completely in late 2023.
What’s better than a compact SUV with a legendary reputation for safety and reliability? A hybrid that lets you
save money on gas
! Practical, efficient, and nicely outfitted, the 2021 Toyota RAV4 Hybrid more than lives up to the hype. Unfortunately, it’s got a high price tag, and federal tax credit guidelines have tightened since August 2022.
Learn all about the remaining federal tax credits for the 2021 Toyota RAV4 Hybrid with
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Is the 2021 Toyota RAV4 Hybrid still eligible for a federal tax credit?

So is there a tax credit still available for the Toyota RAV4 hybrid? Yes and no. Earlier this year,
Toyota hit the sales cap
for RAV4 Hybrids eligible for the $7,500 federal tax credit. Fortunately, the credit is slowly being phased out, so if you act before April 2023, you can still save $3,750. After that point, it’ll drop to $1,875 per vehicle before disappearing completely in October 2023.
For over a decade, the
Clean Vehicle Credit
has offered buyers a discount on electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs). Its size is determined by the size of the car's battery: $2,500 for each hybrid battery, $417 for the first five kilowatt hours (kWh), and $417 for each kWh after that. With a battery capacity of 18.1 kWh, the RAV4 Hybrid qualified for the maximum credit amount of $7,500.
Nowadays, the only major automakers yet to hit the 200,000-unit sales cap are
Ford
and
Nissan
. The entire
Tesla
lineup, from the
Model X
to
Model 3
, was disqualified in 2019, followed by
GMC
in 2020. But even if it hadn’t sold its 200,000th SUV, the 2021 RAV4 Hybrid still would have been disqualified thanks to the new requirements introduced in August.

What you should know about the new federal EV tax credit requirements

Federal tax credits are no longer based solely on a vehicle's battery size and sales figures. Now, buyers must also consider income limits, sale prices, final assembly locations, and critical mineral content. The new requirements took effect in August following the Inflation Reduction Act of 2022.
Before the act, you could find out if a vehicle was eligible for a federal tax credit by asking two questions:
  • Is it an EV or PHEV?
  • Has the manufacturer sold fewer than 200,000 models to date?
After the act, the following questions also apply:
These tightened federal tax credit guidelines kick in at the start of 2023. To qualify for a credit, a vehicle will have to answer yes to every question, and the Toyota RAV4 Hybrid falls short on number two. In fact, currently, there are zero EVs or PHEVs for sale in the US that meet every guideline.
So if you're going to buy electric, regardless of make, you'd better do it soon.

Other electric vehicle incentives

The act should increase the amount of domestically manufactured parts and components in vehicles sold in the US. Meanwhile, you can apply for plenty of other incentives on your new EV or PHEV. You can go green with local and state promotions, plus commercial rebates and tax credits.
For example,
California electric vehicle incentives
include a $7,000 credit on the purchase of a new electric vehicle or hybrid. In
New York
, it’s $2,000. The Jacksonville Electric Authority offers up to $7,500 of tax credits if you live in
Florida
. And last but not least, you can save a ton of money by knowing
how to negotiate with a car salesperson
!

Is the Toyota RAV4 Hybrid worth buying? 

As we said at the start of this article, the Toyota RAV4 Hybrid has great press. Its awards and accolades include:
  • An 8.5/10 rating and Editor’s Choice Award on
    Car & Driver
  • A 7.8/10 rating on
    Edmunds
  • A five-star crash test rating from the
    NHTSA
  • A “Good” crash test rating and Top Safety Pick title from the
    IIHS
…and a 4.0/5.0 reliability rating on
RepairPal
, to name a few. While it went unrated on Consumer Reports, the 2021
RAV4 Prime
received
5.0/5.0 for Reliability and Owner Satisfaction
while the
regular RAV4
received 4.0/5.0, so make of that what you will. The point is the 2021 RAV4 Hybrid is as highly recommended as they come.
As a traditional hybrid, the RAV4 Hybrid uses regenerative braking to recharge its battery. No need to plug it in—just drive around town and enjoy the boost to the 2.5L four-cylinder engine. The RAV4 Hybrid can hit 60 mph in 7.4 seconds and has a total of 219 hp, and thanks to its CVT, it can do it all at a super-efficient 40/41/38 miles per gallon (combined/city/highway mpg).
Starting at $28,900, you get LED headlights, power-folding exterior mirrors, and a 7.0-inch touchscreen with Apple CarPlay, Android Auto, and Amazon Alexa. Move up to the
Limited trim
for a navigation system, premium 11-speaker audio system, and panoramic sunroof, but it’s an $8,500 leap. Toyota’s excellent Safety Sense™ 2.0 packages forward-collision mitigation systems, lane-departure warnings, adaptive cruise control, and auto high beams with every RAV4.
Before it lost the federal tax credit, we'd have said the RAV4 was definitely worth the price. Now, we're not so sure. Hopefully, Toyota will drop the price to compensate (as
Chevrolet
did with the
Bolt
), but in the meantime, there are plenty of handsome competitors to consider.

What to buy instead of a 2021 Toyota RAV4 Hybrid 

Whether you’re craving more power, more mileage, or more amenities, the growing EV market has you covered. If you're not satisfied with the RAV4 Hybrid, here are three rivals to consider:

2021 Toyota RAV4 Prime

Starting price: $38,250
Clean Vehicle Credit: $3,750 (October 2022 to April 2023); $1,875 (April 2023 to October 2023)
The plug-in 2021 RAV4 Prime is more expensive, but you get more bang for your buck. More power, with a 302-hp 2.5L four-cylinder engine and an electric motor that can hit 60 mph in 5.6 seconds. More efficiency, with 94 mpge combined. And more fuel savings, with an all-electric range of 42 miles.
You also get a few extras, like heated front seats and a larger touchscreen, but you're mostly paying for the 18.1 kWh battery, which recharges in 12 hours with a standard household outlet. On the plus side, every new Toyota comes with a complimentary two-year maintenance plan.

2021 Honda CR-V Hybrid

Starting price: $30,560
Clean Vehicle Credit: $0.00
If you've driven an SUV before, you know they’re gas guzzlers. That’s why one of the 2021 Honda CR-V Hybrid's biggest selling points is its 38/35/40 mpg rating. However, considering the regular CR-V gets 30/28/34 mpg, we’re surprised the hybrid’s fuel economy isn’t higher.
Although the CR-V Hybrid is a confident driver, it has one glaring insecurity. Once it comes to a complete stop, it struggles to find its footing and takes 8.5 seconds to reach 60 mph. Otherwise, its standard features, technology, driver assistance aids, and impeccable safety record are all similar to that of the RAV4 Hybrid.
So similar, in fact, we can't help but notice the RAV4 Hybrid does everything the CR-V can do more efficiently for $2,000 less and with complimentary maintenance to boot. Unless you love Honda’s well-built interiors, stick with the Toyota.

2021 Ford Mustang MACH-E

Starting price: $42,895
Clean Vehicle Credit: $7,500
The luxury entry is the 2021 MACH-E, and if you think the "Mustang" part is just for marketing purposes, you couldn't be more wrong. It's fast, agile, and can hit 60 mph in 5.2 seconds without losing its composure on corners and hills. The 266-hp motor can take you 300 miles at 100 mpge on a single charge, which you can top up to 80% in 45 minutes at a DC Fast Charger.
Inside, you'll find keyless ignition and start, a 15.5-inch touchscreen with wireless Apple CarPlay and Android Auto, and Ford Co-Pilot360™. The package includes cruise control, front collision mitigation, blind-spot monitoring, and rear parking sensors. As one of the few vehicles still eligible for a $7,500 tax credit, the 2021 MACH-E is extremely competitive. Make sure to grab one before the new, strict guidelines kick in at the start of 2023.

How to save on electric car insurance costs

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