The old credit offered $7,500 to new electric vehicle buyers until their automaker hit a 200,000 limit on available tax credits. Plug-in hybrid buyers received a smaller credit.
The new law also imposes new restrictions on the price of vehicles, as well as limits on the buyer’s income.
How do I qualify for the tax credit?
There are plenty of strict requirements for electric vehicles to receive the tax credit under the new law, which will go into full effect on January 1, 2023. Vehicles must be assembled in North America. Much of their production of battery components and battery minerals must take place in North America. As of 2023, 40% of the essential minerals used to make a vehicle’s battery must be mined or processed in the United States, or a country that has a free trade agreement with the US, for the vehicle to be eligible. By 2027, that number will rise to 80% of battery minerals. The requirement for battery components requires that 50% be manufactured or assembled in North America beginning in 2023 and 60% in 2024 and 2025. That number will gradually grow to 100% by 2029.
Under the new credit system, the suggested retail price of a pickup truck or SUV cannot exceed $80,000, and other vehicles such as sedans cannot exceed $55,000. A buyer’s income cannot exceed $150,000 if he is single, $225,000 if he is the head of a household, or $300,000 if he is married.
First-time buyers who purchase a pre-owned electric vehicle or plug-in hybrid can receive as much as $4,000.
You must also purchase a vehicle before December 31, 2032.
How big is the tax credit?
New vehicles are eligible for as much as $7,500, provided final assembly takes place in North America. Half of the credit – $3,750 – depends on meeting the battery mineral requirement and the other half depends on the battery component requirement.
There is a new credit for some buyers who buy a pre-owned electric vehicle for up to $4,000. The credit may not exceed 30% of the vehicle’s retail price.
Which vehicles qualify for the $7,500 tax credit?
According to the Alliance for Automotive Innovation, which represents automakers such as Ford, GM, Hyundai, Toyota and Volkswagen, no electric vehicles will currently qualify for the full tax credit when purchasing requirements come into effect in 2023. The new tax credit will significantly reduce the number of vehicles that qualifies. According to the trading group, 70 percent of electric, hybrid and fuel cell vehicles eligible for purchase in the US are now ineligible for credit, including partial ones.
Popular electric models such as the Hyundai Ioniq 5 and Kia EV6 will no longer be eligible for the new rules unless manufacturers make changes such as where the vehicles are assembled.
Teslas, including the popular Model 3 and Y, have been ineligible for credit under the previous structure since January 2020, when the company reached its previous limit of 200,000 vehicles per automaker. However, that limit will be lifted on January 1, 2023, and Teslas will again be eligible for a tax credit, provided the company meets all other new requirements.
Are there exceptions?
Some electric vehicles and plug-in hybrids will remain eligible until the end of the year due to a bill quirk. The North American assembly provision went into effect when Biden signed the bill, but nothing else. Consumers interested in electric vehicles manufactured in North America should consider making a purchase before January 1, when the higher requirements begin.
The Mercedes-Benz EQS SUV is expected to be eligible by the automaker until the end of the year, but not the EQS sedan because, unlike the SUV, it is not assembled in the United States. BMW says the X5 plug-in hybrid and 3-series plug-in hybrid are both eligible for the remainder of 2022.
Ford says its electric and plug-in vehicles, including the Mustang Mach-E, F-150 Lightning and Escape plug-in hybrid, will be eligible for the rest of the year.
These vehicles should be delivered by the end of the year.
Rivian vehicles are made in North America, but new orders placed in the latter months of the year are unlikely to get credit as the automaker has an order backlog that exceeds its production target for the year, so customers wouldn’t be able to make delivery earlier. received 2023.
Automakers and consumers are in a state of uncertainty for 2023 as the government finalizes the tax credit. For example, it is unclear how the government will determine whether a vehicle meets the thresholds for battery minerals and battery components. Ultimately, the IRS will provide a list of vehicles to consumers showing how much money they are eligible to receive.
Why are there so many more restrictions?
sen. Critical voice Joe Manchin was concerned about the US’s reliance on foreign countries for electric vehicle parts. Manchin noted that the US was building its own gas-powered vehicles and engines, suggesting the country should be able to do the same with electric vehicles and batteries. The tax breaks could encourage automakers to relocate battery metal mining and processing, as well as vehicle assembly, to North America. Some experts have warned of national security risks associated with foreign reliance on electric vehicles.
If I find a qualifying vehicle, how soon can I get the tax credit?
Initially, buyers will have to wait to receive the tax credit when they file their tax returns. But from January 1, 2024, electric vehicle buyers will be able to receive the money immediately, at the point of sale, if they agree to transfer the credit to their dealer.