The Inflation Reduction Act (IRA) contains funding for energy programs, including a $7,500 tax credit for electric vehicles (EVs). The law will also provide tax credits for commercial trucks and home charging installations in rural areas. Plus, some used electric vehicles are also eligible for an incentive.
How Much is the EV tax credit?
Until recently, only a small number of consumers were benefitting from EV tax credits. Tesla and General Motors are nearing their 200,000 vehicles sales cap and their long-standing tax credits are set to expire, this new federal tax credit came just in time.
According to the Alternative Fuels Data Center, approximately 30 models are eligible for up to $7,500 in tax credits, but only if their final assembly takes place in North America and 40 percent of their metals are mined in North America. Of the 30, ten have already reached their manufactures cap. Plus, there is an up to $4,000 incentive on used electric cars.
“If you’re interested in an EV or a plug-in hybrid and it qualifies for a tax credit today, don’t wait, because it might not qualify next year,” says Jake Fisher, Senior Director of Consumer Reports’ Auto Test Center. “But if you’re considering a used EV, it is worth waiting.”
Other EV Provisions
In addition to federal tax incentives, the following IRA provisions apply:
- Removes the 200,000-vehicle cap on tax credits that made EVs and plug-in hybrids from Tesla, GM, and Toyota ineligible for tax credits.
- Eradicates today’s tax credits for pricey EVs—such as the GMC Hummer EV, Lucid Air, and Tesla Model S and Model X.
- Eliminates tax credits for vehicles not assembled in North America, including the BMW i4, Hyundai Ioniq 5, Kia EV6, Subaru Solterra, and Toyota bZ4X.
- Adds an annual adjusted gross income cap for buyers of $150,000 for single tax filers; $225,000 for those who file as head of household, and; $300,000 for married couples filing jointly.
- Starting in 2024, if any minerals or components are sourced from “foreign entities of concern,” including China or Russia, the vehicle will not qualify for any tax credit.
Qualifying Vehicles – For Now
According to the IRS, the models that may qualify for a tax credit, include:
- 2022 Audi Q5 PHEV
- 2022 BMW 3 Series PHEV, BMW X5 PHEV
- 2022 Chrysler Pacifica PHEV
- 2022 Ford Escape PHEV, F-150 Lightning, Mustang Mach-E, Transit Van
- 2022 Jeep Grand Cherokee PHEV, Wrangler 4xe PHEV
- 2022 Lincoln Aviator PHEV, Corsair PHEV
- 2022 Lucid Air
- 2022 Nissan Leaf
- 2022 Rivian R1S, R1T
- 2022 Volvo S60 Recharge PHEV
- 2023 BMW 3 Series PHEV
- 2023 Mercedes-Benz EQS
- 2023 Nissan Leaf
Vehicles that may qualify after December 31, 2022, include:
- 2022 Tesla Model 3, Model S, Model X, Model Y (maybe not)
- 2023 Cadillac Lyriq
- 2022 GMC Hummer Pickup/SUV (maybe not)
- 2023 Chevrolet Bolt, Bolt EUV
Vehicle Price Cap
According to Consumer Reports, “All the vehicles on both of these lists will still be subject to new caps on how much vehicles can cost. For SUVs, pickup trucks, and vans, the threshold is $80,000. For sedans, hatchbacks, wagons, and other vehicles, the credit cuts off at $55,000.”
What if…
What if you bought a qualifying car before August 16, but didn’t take possession of it until on or after August 16, can you still claim the credit? The IRS says yes!
“Individuals who entered into a written binding contract to purchase a new qualifying electric vehicle before August 16, 2022, but do not take possession of the vehicle until on or after August 16, 2022 (for example, because the vehicle has not been delivered), can claim the EV credit based on the rules that were in effect before the Inflation Reduction Act’s enactment.”
Next Steps
Before you sign the contract, make sure the vehicle you’re choosing qualified. Do this by entering its VIN into the National Highway Traffic Safety Administration’s free VIN Decoder.
If an EV is on your wish list, do your due diligence ahead of time to avoid disappointment come tax time. If you have questions about which vehicles qualify for the tax deduction and how much you may be able to claim, give us a call.
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