Buying an EV? There's a Big, New Tax Credit

Starting Jan. 1, many Americans will qualify for a tax credit of up to $7,500 for buying an electric vehicle. The credit, part of changes enacted in the Inflation Reduction Act, is designed to spur EV sales and reduce greenhouse emissions. But a complex web of requirements, including where vehicles and batteries must be manufactured to qualify, is casting doubt on whether anyone can receive the full $7,500 credit next year. For example, several models made by Kia, Hyundai, and Audi won't qualify because they are manufactured outside North America. For at least the first two months of 2023, though, a delay in the Treasury Department's rules for the new benefit will likely make the full credit temporarily available to consumers who meet certain income and price limits. Here is a closer look at the tax credit, per the AP, which lasts till 2032.

• The deal: A credit of up to $7,500 will be offered to buyers of certain new electric vehicles as well as some plug-in gas-electric hybrids and hydrogen fuel cell vehicles. For buyers of a used vehicle that runs on battery power, there's a $4,000 credit. But the question of which vehicles and buyers qualify will remain uncertain until March. What's known now is that to qualify for the credit, new EVs must be made in North America. In addition, caps on vehicle prices and buyer incomes are intended to disqualify wealthier buyers.
• Battery rules: Starting in March, complex provisions will govern battery components; 40% of battery minerals will have to come from North America or a country with a US free trade agreement or be recycled in North America. That threshold will eventually go to 80%. And 50% of the battery parts will have to be made or assembled in North America, eventually rising to 100%. Starting in 2025, battery minerals cannot come from a "foreign entity of concern," mainly China and Russia. Battery parts cannot be sourced in those countries starting in 2024—an obstacle for the auto industry because numerous EV metals and parts now come from China. There also are battery size requirements.
• Eligible vehicles: That's not entirely clear. General Motors and Tesla have the most EVs assembled in North America. Each makes batteries in the US. But because of the requirements for where batteries, minerals, and parts must be manufactured, it's likely that buyers of those vehicles would initially receive only half the credit, $3,750. GM says its eligible EVs should qualify for the $3,750 credit by March, with the full credit available in 2025. The Energy Department says 29 EV and plug-in models were manufactured in North America in the 2022 and 2023 model years. They're from Audi, BMW, Chevrolet, Chrysler, Ford, GMC, Jeep, Lincoln, Lucid, Nissan, Rivian, Tesla, Volvo, Cadillac, Mercedes, and Volkswagen. Not all models will qualify.
• Price limits: New sedans cannot have a sticker price above $55,000. Pickup trucks, SUVs, and vans can't be over $80,000. Kelley Blue Book says the average EV now costs over $65,000, though lower-priced models are coming.
• Who qualifies: For new EVs, buyers cannot have an adjusted gross income above $150,000 if single, $300,000 if filing jointly, and $225,000 if head of a household. For used EVs, buyers cannot earn more than $75,000 if single, $150,000 if filing jointly, and $112,500 if head of household.
• Buy now or wait?: If you're tired of volatile gasoline prices and are considering an EV, you might want to go ahead. Buying a qualifying EV in January or February could net you the full $7,500 tax break before more stringent requirements take effect in March. Additional state credits also may be available. But if you're on the fence, there's no urgency. Consumers who buy now, when relatively few qualifying EVs are available, may face dealer price markups. Within a few years, technology will improve, and more EVs will qualify for full credits.

(More electric vehicles stories.)