$7,500 Electric Vehicle Tax Credit Starts in 2023: How Will It Work?

WASHINGTON (AP) — Starting January 1, many Americans will qualify for a tax credit of up to $7,500 for purchasing an electric vehicle. The credit, part of the changes promulgated in the Inflation Reduction Law, is designed to stimulate electric vehicle sales and reduce greenhouse emissions.

But a complex web of requirements, including where the vehicles and batteries must be made to qualify, cast doubt on whether anyone can receive the full $7,500 credit next year.

However, for at least the first two months of 2023, a delay in Treasury Department rules for the new benefit will probably do the full credit temporarily available to consumers who meet certain income and price limits.

The new law also provides a lesser credit for people who buy a used EV.

Certain makes of electric vehicles that were eligible for a separate tax credit that began in 2010 and will end this year may not be eligible for the new credit. Several EV models made by Kia, Hyundai, and Audi, for example, won’t qualify at all because they’re made outside of North America.

The new tax credit, which lasts until 2032, aims to make zero-emission vehicles affordable for more people. Here’s a closer look:



The credit of up to $7,500 will be offered to people who purchase certain new electric vehicles, as well as some plug-in gas-electric hybrids and hydrogen fuel cell vehicles. For individuals purchasing a used battery-powered vehicle, a $4,000 credit will be available.

But the question of which vehicles and buyers will qualify for the credits is complicated and will remain uncertain until Treasury issues proposed rules in March.

What is known so far is that to qualify for the credit, new electric vehicles must be manufactured in North America. In addition, caps on vehicle prices and buyer income are intended to disqualify wealthier buyers.

Starting in March, complex regulations will also govern battery components. Forty percent of the minerals in the batteries will either have to come from North America or a US free trade country or be recycled in North America. (That threshold will eventually go to 80%).

And 50% of the battery parts will need to be made or assembled in North America, eventually increasing to 100%.

As of 2025, battery minerals cannot come from a “foreign entity of interest,” primarily China and Russia. Battery parts cannot be obtained in those countries after 2024, a problematic hurdle for the auto industry because many metals and electric vehicle parts now come from China.

There are also battery size requirements.



Due to the many remaining uncertainties, that is not entirely clear.

General Motors and Tesla have the most electric vehicles assembled in North America. Each also makes batteries in the US But due to the requirements of where the batteries, minerals and parts must be made, buyers of those vehicles are likely to initially receive only half the tax credit, $3,750. GM says its eligible electric vehicles should qualify for the $3,750 credit in March, with the full credit available in 2025.

However, until Treasury issues its rules, the requirements governing where minerals and parts must be sourced will not apply. This will allow eligible buyers to receive the full $7,500 tax incentive for qualifying models in early 2023.

The Department of Energy says 29 EV and plug-in models they were made in North America in the 2022 and 2023 model years. They are from Audi, BMW, Chevrolet, Chrysler, Ford, GMC, Jeep, Lincoln, Lucid, Nissan, Rivian, Tesla, Volvo, Cadillac, Mercedes, and Volkswagen. However, due to price caps or battery size requirements, not all of these vehicle models will qualify for the credits.



To qualify, new electric sedans cannot have a sticker price greater than $55,000. Trucks, SUVs and vans cannot exceed $80,000. This will disqualify two higher-priced Tesla models. Although Tesla’s best-selling models, the Model 3 and Model Y, will be eligible, with options, those vehicles could exceed the price limits.

Kelley Blue Book says the average EV now costs more than $65,000, though lower-priced models are coming.



It depends on your income. For new electric vehicles, buyers cannot have an AGI greater than $150,000 if single, $300,000 if filing jointly, and $225,000 if head of household.

For used electric vehicles, buyers cannot earn more than $75,000 if single, $150,000 if filing jointly, and $112,500 if head of household.



Initially, it will be applied to your 2023 tax return, which you will file in 2024. Beginning in 2024, consumers can transfer the credit to a dealer to reduce the price of the vehicle at the time of purchase.



Yes, but it will probably take a few years, says Mike Fiske, an associate director at S&P Global Mobility. The credit may cause a surge in sales early next year due to Treasury’s delay in issuing tougher requirements. But most automakers are now selling off all the electric vehicles they build and can’t make any more due to shortages of parts, including computer chips.

And automakers may have trouble certifying the sources of battery minerals and parts, a requirement for buyers to receive full credit. Automakers have been scrambling to move more EV supply chains to the US.



Consumers can receive tax credits of up to $4,000, or 30% of the vehicle price, whichever is less, for purchasing electric vehicles that are at least two years old. But the used EV must cost less than $25,000, a tall order given the starting prices of most EVs on the market. A search on Autotrader.com shows the Chevy Bolt, Nissan Leaf, and other relatively inexpensive used EVs trading at $26,000 or more for models dating to 2019.

On the other hand, used EVs do not need to be made in North America or meet battery sourcing requirements. That means, for example, a 2022 Kia EV6 that isn’t eligible for the new car credit because it’s made in South Korea may qualify for a used car credit if its price falls below $25,000.

“The real effects where these tax credits will have a big impact will be in the period from 2026 to 2032, a few years in the future, as automakers prepare and increase volumes,” said Chris Harto, principal policy analyst. of Consumer. Reporting magazine.



The credits are part of an estimated $370 billion in clean energy spending, America’s largest investment to combat climate change, which was signed into law in August by President Joe Biden. Electric vehicles now account for about 5% of new vehicle sales in the US; Biden has set a goal of 50% by 2030.

Electric vehicle sales have been on the rise, particularly as California and other states have moved to phase out gasoline-powered cars. the rise of lower cost competitors for Tesla, like the Chevy Equinox, with an expected base price of around $30,000, are expected to extend the reach of electric vehicles to middle class households. S&P Global Mobility expects the share of electric vehicles in car sales to reach 8% next year, 15% by 2025 and 37% by 2030.



That is not clear yet. Some US allies are upset by North American manufacturing requirements that disqualify EVs made in Europe or South Korea.

The requirements remove Hyundai and Kia from the credits, at least in the short term. They plan to build new electric vehicle and battery plants in Georgia, but they won’t open until 2025. European Union countries fear tax credits could prompt their automakers to move their factories to the US.

The Treasury Department said it would release information by the end of the year. on the “advance direction” of battery supply and mineral requirements. A relaxation of the rules to address the concerns of US allies would make more electric vehicles eligible. But it also risks extending America’s dependence on foreign supply chains.



If you install an EV charger at home, credits may be available. The new law revives a federal tax credit that had expired in 2021; provides 30% of the cost of hardware and installation, up to $1,000. That adds a requirement that the charger must be in a low-income or non-urban area. Businesses that install new EV chargers in those areas can receive tax credits of up to 30%, up to $100,000 per charger.

Residential electric vehicle chargers can cost between $200 and $1,000; installation can add several hundred dollars more.



That is a totally personal decision.

If you’ve grown tired of volatile gas prices and are considering an EV, you may want to move on. Purchasing a qualifying EV in January or February could earn you the full $7,500 tax break before more stringent requirements take effect in March. Additional state credits may also be available.

But if you are still undecided, there is no urgency. Consumers rushing to buy now, when there are relatively few electric vehicles available, may face price hikes from dealerships. Within a few years, technology will improve and more EVs will qualify for full credits.

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