Electric Vehicle Incentives in the Inflation Reduction Act

The Inflation Reduction Act that was signed into law in August includes renewed incentives for buying electric vehicles (EVs). The details are a little confusing and some have yet to be decided. But here is a quick summary to help EV shoppers decide which car to buy and when to buy it.

The $7,500 tax credit for EV purchase is being extended until 2032, but there will be some restrictions and changes.

• Effective immediately, the car must be assembled in the US, Canada, or Mexico. You will have to check where a specific car was made. A list of eligible vehicles can be found at the US Dept of Energy resource page. But this list is in flux because, for example, VW has started making the electric Id4 in Tennessee.

• Starting in 2023, the requirement that the manufacturer has sold less than 200,000 vehicles goes away, so the tax credit will again be available for Teslas, the popular Chevy Bolt, and other new EVs from General Motors.

• Also starting in 2023, the credit is divided into two parts: $3,750 if the minerals in the battery come from the US or a free trade partner, and $3,750 if the battery components were manufactured in North America (including Canada and Mexico). The IRS is currently working on the specific rules for this and it will be phased in over several years so that the manufacturers can find new sources for the components of batteries.

• There is an income eligibility requirement now. The credit is only available to people making less than $150,000 if filing singly and $300,000 if filing jointly.

• And there is a vehicle cost limit. The credit only applies to SUVs and Pickups costing less than $80,000 and cars costing less than $55,000.

• Starting in 2024, automobile dealers can apply the credit at the time of purchase. However, it is still unclear whether this makes it a rebate, or if you still have to pay at least $7,500 in taxes to get the credit.  We should hear about this from the IRS soon.

• The cars still need to meet the minimum battery size that is in effect now, so some plug in hybrids will qualify, and some will not. All full EV’s will qualify.

• There is also a new credit for used vehicles, up to $4,000, or 30%, whichever is lower, for a qualified used car. This also comes with restrictions.

  • The car must be more than two years old. It cannot have been used for a previous tax credit as a used vehicle (but can have produced a tax credit as a new car).

  • Income limits for buyers: $75,000 for filing singly, $150,00 for filing jointly.

  • And the price of the car must be under $25,000.

So, it is complicated, but there will probably be resources to see how much credit you can get for each car. It is clear that the goals of the Act are not only to spur EV purchases, but also to stimulate the US automobile industry and create jobs in the US.