EV Tax Credits for 2024

The Inflation Reduction Act that extended federal incentives for Electric Vehicles (EVs) until 2032 included a number of changes, some of which went into effect in January 2024.  They include some great benefits, but also some restrictions.  There is a work-around for some of the restrictions.  If you are not interested in the details, the EV purchases that qualify for the tax credit are listed at the US Department of Energy site:  https://fueleconomy.gov/feg/tax2023.shtml. 

First the benefits:

• Many new cars are eligible for up to $7500 in tax credits.

• Used cars are now eligible for a tax credit of 30% up to a limit of $4000.

The tax credit can be transferred to the dealer at the time of sale and the dealer must reduce the price by the credit amount, or it can be used as a down payment.  Buyers do not need to wait until the next tax year to get the credit.  More importantly, this also means that buyers do not need to have a tax liability to get the credit.  It is really a rebate.  If they do not pay taxes, they still need to file a form with the IRS.

Now the restrictions

In order for a buyer to get the tax credit, the dealer must be registered with the IRS and thus be eligible to issue an IRS form that is a “seller report”.  Most new car dealers are probably registered, but maybe not all used car dealers.  Make sure to check, because buyers cannot get the credit without this report.

At least 60% of the battery components must be made in North America, and at least 50% of the minerals contained in the battery must be extracted or processed in the United States or a free trade partner. If the car meets only one of these requirements, a buyer can still get a $3750 credit.  These percentages increase to 80% and 100% over the next several years.  The details can be found on a press release from the Dept. of Treasury.

The car must be assembled in the US.  Since individual cars of the same model might be made in different countries you can go to the Department of Energy's page on Electric Vehicles with Final Assembly in North America and use the VIN Decoder tool to check a specific vehicle.

These restrictions leave only about 19 vehicles eligible.  The eligible fully electric vehicles include several Teslas, several Rivians, the Ford F150 Lightning, and the two Chevy Bolts (but they are being discontinued).  There are also several plug in hybrids that qualify. This number of eligible vehicles is sure to increase as US manufacturers change their supply chains and assembly factories.

Used EV’s do not need to meet the sourcing and assembly criteria, so many other vehicles are available.

The same price and income restriction that were in effect last year still apply:  Buyer’s income must be under $300,000 (filing jointly) or $150,000 (filing singly) for new cars, or under $150,000 (filing jointly) or $75,000 (filing singly) for used cars. A new car must have a Manufacturers Suggested Retail Price (MSRP) under $80,000 for a SUV or pickup, or under $55,000 for other cars.  Used cars must cost under $25,000 and be two years old.  Used cars also cannot have had a previous used car credit applied to them (they can have received a new car credit).

Restrictions on where the battery comes from and income and vehicle price limits, do not apply to commercial vehicles, ones that are used in a business.  And if you lease a car, it is owned by the leasing agent, so it qualifies as being an investment and is thus “commercial”.  The leasing agent gets the tax credit, but they can use it to reduce the payments or as a down payment.  The buyer still gets the benefit of the credit.  So, if the car you want does not qualify for a tax credit, consider leasing.  And then, at the end of the lease, if you buy the car from the leasing agent, you can get the used car credit!

More details on the tax credit are available at https://fueleconomy.gov/feg/tax2023.shtml#requirements and at PluginAmerica .  PluginAmerica also offers a buying guide for EV’s and lots of other information.

If you are in a mood to buy, the most important things are:

- Make sure the dealer is registered with the IRS.

- Don’t leave the dealer without a seller report.

- Make sure the car you want is eligible at the US DOE.