Starting Jan. 1, many Americans will qualify for a tax credit of up to $7,500 for the purchase of an electric vehicle. The credit is part of changes implemented in the Lower Inflation Act to stimulate electric vehicle sales and reduce greenhouse gas emissions.
But the complex web of requirements, including where the vehicle and battery must be built to qualify, has raised doubts that anyone will get the full $7,500 credit next year.
Still, at least the first two months of 2023, a delay in the Treasury’s new entitlement rules could temporarily grant full credit to consumers who meet certain income and price limits.
The new law also provides smaller credits for people buying used electric vehicles.
Certain EV brands that were eligible for a separate tax credit that began in 2010 and ends this year may not be eligible for the new credit. For example, several EV models made by Kia, Hyundai, and Audi are not eligible at all because they are built outside of North America.
The new tax credit, which runs until 2032, aims to make zero-emissions cars more affordable. Here’s a closer look at it:
People who buy certain new electric vehicles, as well as certain plug-in gasoline-electric hybrids and hydrogen fuel-cell vehicles, will get credits of up to $7,500. There will be a $4,000 credit for people who buy a used battery-powered car.
But the question of which vehicles and buyers qualify for the credit is complex and remains uncertain until the Treasury Department issues proposed rules in March.
What is known so far is that to qualify for the credit, new EVs must be built in North America. Additionally, caps on vehicle prices and buyer incomes are designed to disqualify wealthier buyers.
From March, complex regulations will also apply to battery components. Forty percent of battery minerals will have to come from or be recycled in North America or a country with a free trade agreement with the United States. (That threshold will eventually reach 80%.)
And 50% of battery components will have to be manufactured or assembled in North America, which will eventually rise to 100%.
Starting in 2025, battery minerals cannot come from “entities of foreign concern,” primarily China and Russia. Starting in 2024, battery components will not be able to be sourced in these countries – a thorny hurdle for the auto industry, which now sources many electric vehicle metals and components from China.
There are also battery size requirements.
This is not entirely clear as there are still many uncertainties.
General Motors and Tesla assemble the most electric vehicles in North America. Each company also makes batteries in the U.S. But because of requirements on where the batteries, minerals and parts must be produced, buyers of those vehicles may only get half of the tax credit, or $3,750, initially. GM said its eligible EVs should be eligible for the $3,750 credit by March and receive the full credit by 2025.
However, the requirement on where minerals and parts must be sourced will be waived until the Treasury Department issues rules. This will allow eligible buyers to receive the full $7,500 tax credit for eligible models in early 2023.
North America produced 29 electric and plug-in models for the 2022 and 2023 model years, the Energy Department said. They come from Audi, BMW, Chevrolet, Chrysler, Ford, GMC, Jeep, Lincoln, Lucid, Nissan, Rivian, Tesla, Volvo, Cadillac, Mercedes and Volkswagen. However, not all of these models are eligible for credit due to price constraints or battery size requirements.
To qualify, the sticker price of a new electric sedan cannot exceed $55,000. Pickup trucks, SUVs and vans cannot exceed $80,000. That would disqualify two pricier Tesla models. While Tesla’s top-selling models, the Model 3 and Y, are eligible, those vehicles could be over priced if given the option.
Kelley Blue Book says the average price of an electric car is now more than $65,000, though lower-priced models are on the way.
It depends on your income. For new electric vehicles, adjusted gross income cannot exceed $150,000 for a single buyer, $300,000 for a joint filing, or $225,000 for the head of a household.
For used EVs, income cannot exceed $75,000 for a single buyer, $150,000 for a joint filing, or $112,500 for the head of household.
First, it will be applied to the 2023 tax return you file in 2024. Beginning in 2024, consumers can transfer credits to dealerships to reduce the price of a vehicle at the time of purchase.
Yes, but it could take several years, said Mike Fiske, associate director of global liquidity at S&P. The credit could lead to a surge in sales early next year as the Treasury Department delays issuing stricter requirements. But most automakers are now selling all the EVs they make and are unable to make more due to shortages of components, including computer chips.
Automakers may struggle to certify the provenance of battery minerals and parts, a requirement for buyers to receive full credit.Automakers have been scrambling to move more of their EV supply chain to the U.S.
Consumers who purchase an electric vehicle that is at least two years old can receive a tax credit of up to $4,000 — or 30 percent of the vehicle’s price, whichever is less. But used EVs must be priced under $25,000 — a tall order considering the starting price of most EVs on the market.search Autotrader.com Shows Chevrolet Bolts, Nissan Leafs and other relatively affordable used EVs listed for $26,000 or more, dating back to the 2019 model year.
On the other hand, used EVs are not required to be manufactured in North America or meet battery sourcing requirements. That means, for example, if the 2022 Kia EV6 is not eligible for the new car credit because it’s built in Korea, it would be eligible for the used car credit if it costs less than $25,000.
“The real impact of where these tax credits will have a significant impact will be in the period 2026 to 2032 — the next few years — as automakers ramp up production and increase sales,” said Chris Harto, senior policy analyst at Consumer. report magazine.
The credits are part of about $370 billion in clean energy spending — the largest U.S. investment to combat climate change — signed into law by President Joe Biden in August. Electric vehicles now account for about 5% of new U.S. car sales; Biden has set a goal of reaching 50% by 2030.
Sales of electric vehicles have been climbing, especially as California and other states have begun phasing out gasoline-powered vehicles. The rise of Tesla’s low-cost rivals, such as the Chevrolet Equinox, which has an expected base price of about $30,000, is expected to expand the reach of electric vehicles to middle-class households. S&P Global Mobility expects EVs to account for 8 percent of car sales next year, 15 percent by 2025 and 37 percent by 2030.
It’s not clear. Some U.S. allies are unhappy with North American manufacturing requirements that disqualify electric vehicles made in Europe or South Korea.
The demands take Hyundai and Kia out of credit, at least in the short term. They plan to build new electric vehicle and battery factories in Georgia, but those factories won’t open until 2025.EU countries fear tax credits could see their automakers move factories to U.S.
The U.S. Treasury Department said it would release information on the “expected direction” of battery purchases and mineral demand by the end of the year. Relaxed rules to address concerns of U.S. allies would make more electric vehicles eligible. But it also risks widening America’s reliance on foreign supply chains.
You may get points if you install an EV charger in your home. The new law restores a federal tax credit that expires in 2021; it offers 30 percent of hardware and installation costs, up to $1,000. It adds the requirement that chargers must be located in low-income or non-urban areas. Businesses that install new electric vehicle chargers in these areas can receive tax credits of up to 30 percent — up to $100,000 per charger.
The cost of a home EV charger can range from $200 to $1,000; installation can add a few hundred dollars.
This is entirely a personal decision.
If you’re tired of fluctuating gas prices and are considering buying an electric car, you might want to go ahead. Buy a qualifying EV in January or February before the stricter requirements take effect in March to get the full $7,500 tax credit. Additional national credits may also be available.
But if you’re still on the sidelines, there’s no sense of urgency. Consumers rushing to buy now could face dealer markups when there are relatively few eligible EVs. Within a few years, the technology will improve and more EVs will be eligible for full credits.