The Inflation Reduction Act’s electric vehicle tax credits are confusing, but we can help


Are you ready for a new electric car? Excellent! EVs are quickly becoming the most sought-after new vehicle. They are fun to drive and clearly better for the environment than any gas beater you have to shade your driveway.

But shopping for a new EV is hard – expensive! limited stock! waiting lists?? – and unfortunately Congress and President Joe Biden just dived in to make it even harder. On Tuesday, Biden signed the sweeping Inflation Reduction Act of 2022, the country’s most important climate law ever passed into law. One of the key pieces of the bill are new tax credits for electric vehicles: $7,500 at the point of sale for new EVs and $4,000 for used EVs.

Sounds great, right? Think again. The tax credits are actually a confusing morass of eligibility requirements and purchasing regulations that can ultimately limit what people buy. There are income limits, sticker price requirements, battery and supply chain restrictions, various phases where the old credits still work but new requirements apply….woof. It’s like, do they want people to buy EVs or not?

Lucky you have a friend in The edge that’s here to help you navigate through all of these questions. Let’s dive in, shall we?

I’m interested in buying a new EV, and I want that sweet, sweet tax break. What do I have to know?

Now that President Biden has signed the bill, there are a number of new rules that will take effect immediately that you should know about first. Most of the new rules don’t go into effect until December 31, 2022 and will stay in effect until 2032, but let’s talk about what you need to know now.

As of today, electric vehicles must be assembled in North America to qualify for the $7,500 tax credit. I know what you’re thinking: how the hell am I supposed to know which vehicle was made where? Fortunately, the Biden administration already has a list of 20 eligible EVs ready to go.

Oh great, this looks handy. But I don’t see many of the popular EVs I wanted to buy, like the Hyundai Ioniq 5 and Kia EV6.

I have bad news, friend. Those EVs you just mentioned are made in South Korea and are no longer available for tax credits.

What about the BMW i4? Or Toyota bZ4X?

Germany and Japan respectively.

damn. Okay, I think I’ll get a Tesla, but what does “sell off the manufacturer” mean?

That means these companies — Tesla, General Motors and Toyota (there are only three at the moment) — have already sold more than 200,000 EVs, leading to a phasing out of the $7,500 tax credit under the previous rules. These three companies are no longer eligible for the current tax credits.

Photo by Andrew J. Hawkins / The Verge

But I thought the new tax rules were already in effect.

Not yet! We’re in a weird liminal period where some of the new rules are in effect, but most don’t take effect until the new year. I told you this would be confusing!

What happens to the cap?

From January 1, the limit of 200,000 vehicles has disappeared. pouf. That means Tesla, GM and Toyota are once again eligible for the tax credit.

So what kind of car should I buy now if I really want an EV?

Honestly, good luck finding anything now. The demand for EVs is very high and the inventory is extremely low. Dealers are marking new EVs like there’s no tomorrow. It’s a perfect storm for not getting what you want.

But if you can afford it, go for one of the premium or luxury EVs, such as Lucid or Rivian. Both companies are trying to get customers to sign “binding written contracts” to secure the current EV tax credit before the new rules complicate matters. After the new year, there will be a whole lot more requirements about who can claim the credit and which cars are eligible.

Oh yeah, what’s the deal with these “written binding contracts”?

Thus, the Inflation Reduction Act contains a “transitional rule” whereby any customer with a “binding binding purchase contract” of a new electric vehicle before the law comes into force can choose to take the old tax credit, even if the vehicle is delivered after the entry into force of the bill.

Before these changes were announced, customers interested in buying an electric car could put down some cash — usually a few hundred dollars — for a refundable deposit on an electric vehicle. But reservations aren’t explicitly covered by the bill’s language, so automakers encourage customers to sign binding contracts to increase their chances of qualifying for the tax credit.

Okay, say I’m rich. What does that mean to me?

If you are rich, now is the time to buy. There are currently no income requirements for those who can claim the credit. But as of Jan. 1, the credits will be capped at an income level of $150,000 for a single taxpayer and $300,000 for joint filers.

There will also be limits on which EVs will qualify for the credit based on the manufacturer’s recommended retail price or MSRP: $55,000 for new cars and $80,000 for pickup trucks, SUVs, and vans. But keep in mind that various options and high-tech features cost extra money, and the final price is what counts for the credit.

But at the moment and until the end of the year, these price caps do not apply.

Just kidding, I don’t have that much money.

I thought so! Then I’d recommend waiting until January 2023, when many more, slightly cheaper EVs, such as the Chevy Bolt EUV and Tesla Model 3, become available new for the credit. (Remember that the cap is lifted.)

Photo by Vjeran Pavic / The Verge

This actually doesn’t seem that confusing.

Okay, now is a good time to talk about the other key provision in the climate law that is giving automakers a headache. Under the new rules, electric vehicles with battery components that come from “foreign entities of concern,” such as China, which is where the vast majority of battery components and minerals come from, will no longer qualify for the tax credit if they are put into service after December 31. . , 2023. If the battery only contains minerals from these countries, it will no longer be eligible for the credit from December 31, 2024.

That’s because the bill would require batteries to have at least 40 percent of materials sourced from North America or a U.S. trading partner by 2024 to qualify for the tax benefit. By 2029, battery components should be 100 percent made in North America. (Oddly enough, this restriction doesn’t apply to used vehicles.)

Which vehicles are eligible under these new mineral and mining rules? We – and I cannot emphasize this enough – don’t know.

Sounds bad.

It is, at least according to the Alliance for Automotive Innovation, which represents all major auto companies.

According to the alliance, there are currently 72 EV models on sale in the US, including battery, plug-in hybrid and fuel cell electric vehicles. Of those models, 70 percent (or about 50 models) do not qualify for the tax credit when the bill is passed. And by 2029, when the additional purchasing requirements go into effect, none would qualify for the full credit.

I thought this bill was meant to encourage more people to buy an electric car. I don’t feel very encouraged.

It could still be! Experts admit these new rules are likely to slow electric car sales in the near term, but once the auto industry brings its battery production and supply chain to North America — which it is doing now, albeit slowly — then the real benefits of these new tax credit will really be felt.

Consider, for example, the vehicle hood of 200,000. Ford was expected to reach that limit every day now, triggering the phase-out. In fact, most automakers were expected to hit the cap sooner or later. But as of January 1, the cap is gone, and many more EVs that were previously ineligible for the credit are now eligible again.

Yes, but these mining requirements – correct me if I’m wrong, but most of these minerals come from abroad, right?

Right. Mineral requirements are a different story, and automakers and government regulators are still working out the details. There is some hope that automakers could ask for an exemption from the requirements, given the precedent that allowed many manufacturers to avoid the “Buy America” ​​rules enacted as part of last year’s bipartisan infrastructure law.

But some automakers are taking steps to bring those mining operations to the US. For example, GM recently struck a deal to source lithium, a key ingredient in EV batteries, from geothermal deposits in California’s Salton Sea geothermal field.

That still leaves many questions about the other key ingredients, such as nickel, cobalt and magnesium — minerals that are expected to be scarce as the clean energy economy begins to thrive.

Frankly, this is above my salary. Maybe I’ll let this sit for a while.

You and me both, friend.

The Valley Voice
The Valley Voice
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.


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