The old loan offered buyers of new electric vehicles $7,500 until their automaker reached a $200,000 limit on available tax credits. Plug-in hybrid buyers received reduced credit.
The new law also introduces new price restrictions for vehicles and income limits for the buyer.
How can I qualify for the tax credit?
There are many strict requirements for electric vehicles to receive the tax credit under the new law, which will come into full effect on January 1, 2023. Vehicles must be assembled in North America. Much of the production of battery components and battery minerals must occur in North America. Beginning in 2023, 40% of the critical minerals used to manufacture vehicle batteries 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 calls for 50% to be manufactured or assembled in North America by 2023 and 60% in 2024 and 2025. This number will gradually increase to 100% by 2029.
Under the new credit system, the MSRP of a pickup truck or SUV cannot exceed $80,000, and other vehicles such as sedans cannot exceed $55,000. A buyer’s income may not exceed $150,000 if single, $225,000 if household keeper, or $300,000 if married.
Buyers of a used electric vehicle or plug-in hybrid can get up to $4,000 for the first time.
Also, you must purchase a vehicle before December 31, 2032.
How much is the tax credit?
New vehicles are eligible for up to $7,500 provided final assembly is in North America. Half of the credit—$3,750—is dependent on meeting battery mineral requirements, and half on battery component requirements.
Up to $4,000 in new credit is available for some buyers purchasing a used electric vehicle. The credit may not exceed 30% of the selling price of the vehicle.
Which vehicles are eligible for the $7,500 tax credit?
According to the Alliance for Automotive Innovation, which represents automakers like Ford, GM, Hyundai, Toyota and Volkswagen, no electric vehicles currently available for purchase will be eligible for the full tax credit when procurement requirements go into effect in 2023. The new tax credit significantly reduces the number of eligible vehicles. Seventy percent of electric, hybrid and fuel cell vehicles approved for purchase in the U.S. are now ineligible for credit, including partial credit, according to the trade group.
Popular electric models like the Hyundai Ioniq 5 and Kia EV6 lose their eligibility under the new rules unless manufacturers make changes, e.g. B. where the vehicles are assembled.
Teslas, including the popular Model 3 and Y, have not been eligible for credit under the previous structure since January 2020, when the company hit the previous limit of 200,000 vehicles per automaker. However, that limit will be lifted on January 1, 2023, and Teslas will again qualify for a tax credit provided the company meets all other new requirements.
Are there exceptions?
Some electric vehicles and plug-in hybrids remain eligible through the end of the year due to a quirk in the bill. The North American Assembly Regulation went into effect when Biden signed the law into law, but nothing else. Consumers interested in electric vehicles made in North America should consider making a purchase before January 1, when the more stringent requirements begin.
The Mercedes-Benz EQS SUV is expected to be registered by the automaker by the end of the year, but the EQS sedan will not because, unlike the SUV, it will not be assembled in the United States. BMW says the X5 plug-in hybrid and the 3 Series plug-in hybrid will both be in the pipeline for the remainder of 2022.
Ford says its electric and plug-in vehicles, including the Mustang Mach-E, F-150 Lightning and plug-in hybrid Escape, will be legal for the rest of the year.
These vehicles would have to 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 be credited as the automaker has a backlog that exceeds its production target for the year, so customers aren’t taking delivery before then would 2023.
Automakers and consumers are in limbo for 2023 as the government finalizes the tax credit. For example, it’s unclear how the government will determine if a vehicle meets thresholds for battery minerals and battery components. Ultimately, the IRS will provide consumers with a list of vehicles showing how much money they can receive.
Why are there so many more restrictions?
Sen. Joe Manchin, a critical voice, had concerns about US reliance on foreign countries for electric vehicle components. Manchin noted that the US built its own gas-powered vehicles and engines, and suggested the country should be able to do the same with electric vehicles and batteries. The tax credits could encourage automakers to move battery metal mining and processing, as well as vehicle assembly, to North America. Some experts have warned of national security risks associated with relying on foreign countries for electric vehicles.
If I find a suitable vehicle, how soon can I get the tax credit?
First, buyers must wait to receive the tax credit when filing their taxes. However, from January 1, 2024, EV buyers can receive the money immediately at the point of sale if they agree to transfer the balance to their dealer.