Interest in purchasing electric vehicles (EV) has increased over the years, as have the tax incentives that come with ownership. As more manufacturers push EVs to be a larger part of their sales, consumers have been able to benefit from tax incentives for purchasing these vehicles. Historically, EV credits were based on the number of vehicles manufacturers produced, indirectly spurring manufacturers to switch to the new technology. However, with the most recent legislation changes from the Inflation Reduction Act (IRA), the EV tax credit requirements have been modified, impacting if they can be claimed on your income tax return.
With the IRA, Congress wanted to ensure that the final assembly of vehicles qualifying for tax credits occurs in North America, thereby increasing domestic production over time. This is a big change from the prior legislation which has reduced the list of vehicles that qualify for the credit – for now. Over time, we anticipate the list will increase. In addition, and for the first time, used cars are also eligible, but for a lower credit amount. Use this link from the Department of Energy to view a list of vehicles that will qualify under the new act.
The other part of the IRA legislation includes price caps on vehicles, which means only vehicles with a purchase price below the limits will qualify for credit. The amount of the credit will be based on adjusted gross income. The purchase price limits are:
- $80,000 for vans, SUVs, and pickup trucks
- $55,000 for sedans and other models
- $25,000 for used vehicles
However, there are some wrinkles in the implementation of this new legislation based on timing. If you purchased the vehicle before the act was passed on August 16, 2022, but delivery happens after this date, then you will still fall under the old legislation. If you purchase and take possession between August 16, 2022 and December 31, 2022, then the credit is transitory, as it takes into effect both the old legislation (caps on number of vehicles sold by manufacturers) and new legislation (final assembly in North America). After January 1, 2023, the new legislation applies, which includes final assembly in North America, upper limits on vehicle cost, and the removal of manufacturer caps on vehicle production.
How Could These Changes Affect You?
Let’s explore the new rules using the Tesla 3, one of the most popular electric vehicles on the market, as an example. Under current legislation, along with the transitory period up to December 31, 2022, the Tesla 3 would not qualify for any tax credits because Tesla produced and sold more than 200,000 vehicles. However, after January 1, 2023, the Tesla 3 would again qualify because the final assembly is in North America and the vehicle is typically under $55,000 (depending on the package you choose).
Qualifying for the EV tax credit can be complicated and nuanced, but CK can help make sense of these new changes. Make sure you contact us before purchasing an electric vehicle so we can confirm your eligibility for the tax credit. Call us today at 630-953-4900.