An electric vehicle (EV) can be an excellent way to both reduce greenhouse gas emissions and save money. But before making this purchase decision, it’s crucial that you understand its rules and potential pitfalls.
Federal tax credits of up to $7,500 for electric vehicle purchases before 2024 can be applied against your tax bill as nonrefundable credits.
Eligibility
The Electric Vehicle Tax Credit can provide buyers of clean cars a significant incentive. It could be worth up to $7,500 upon purchasing an eligible vehicle – though only part of this credit may be claimed on taxes.
State and local governments also provide clean transportation incentives that come in the form of rebates or tax credits that can help offset upfront and ongoing maintenance costs for electric vehicles (EV). These rebates or credits may help lower upfront costs of purchasing or owning an EV as well as help offset those related to ownership over time.
One significant change to the EV tax credit is requiring all final assembly to occur within North America for it to qualify, which may make many popular models ineligible for this reward. This requirement will phase in over time.
New rules prohibit automakers from using battery components and minerals sourced from foreign countries, with additional guidance being developed that would prohibit companies from purchasing minerals from nations such as China which the US considers “entities of concern” to its national security.
These regulations came into effect on April 18 and will take effect gradually, making many clean vehicles ineligible for tax credits. However, should automakers source battery components from North America they could become eligible again as soon as this occurs.
Another key change to the EV tax credit is the removal of price caps on certain vehicle models, in response to concerns that those limits were acting as barriers for consumers who couldn’t afford more expensive options.
IF YOU HAVE ANY CONCERNS REGARDING WHETHER YOUR ELECTRIC VEHICLE QUALIFIES FOR THE CREDITS OR HAVE ANY QUESTIONS PLEASE CONTACT A TAX PROFESSIONAL, YOUR STATE’S DEPARTMENT OF MOTOR VEHICLES OR ENERGY or THE INTERNET to get assistance for purchasing one – This will guarantee that you receive optimal assistance in finding your EV.
Requirements
The Electric Vehicle Tax Credit offers consumers who purchase new or pre-owned plug-in vehicles a $7,500 credit. It applies equally well for used electric car purchases.
To qualify for the credit, an EV must be manufactured within the US or countries with which we have free trade agreements, feature at least 4kWh battery storage capacity and be recharged via external sources; as well as having a driver seat that can recline or fold back down.
Under current rules that go into effect April 18th, only Tesla and General Motors have assembled electric vehicles here and produced batteries here. But under new legislation that’ll take effect in April this might change significantly.
Automakers must adhere to stringent requirements regarding where their electric vehicles (EVs) are assembled and their batteries produced, and where their materials come from. These rules, set to go into effect April 18th, are intended to encourage carmakers to shift their supply chains away from China towards North America or countries with which the United States has trade agreements.
As a result, eligible electric vehicles will decrease from 21 today to eight or nine when these new rules take effect due to one key criterion of them: final assembly must take place in North America – meaning only cutting-edge models can meet this standard.
Automakers need this policy in order to compete with China in terms of battery raw material production by producing their electric vehicles here. Finding an acceptable balance can be tricky; officials in Biden administration believe they’ve found it by encouraging American buyers of cleaner cars while making it easier for companies to relocate out of China.
The government has stated that until March 2023, electric vehicles that fulfill both criteria – final assembly in North America and battery manufacturing here – will qualify for the full $7,500 credit. Until Treasury issues its regulations on how components and minerals for EV batteries should be sourced, most buyers should expect that most EVs won’t meet both rules.
Taxes
A tax credit for electric vehicle ownership or lease can make purchasing or leasing more affordable, and lower monthly lease payments. But in order to make the most of it, it’s essential that you understand which taxes must be paid when claiming an EV tax credit.
The EV tax credit is available to anyone purchasing a fully electric or plug-in hybrid car and can range from $2,500 to $7,500, depending on battery capacity of vehicle purchased.
To be eligible, your modified adjusted gross income (GA) must meet certain thresholds and the cost of your vehicle must fall within an established price cap. The IRS publishes a list of qualifying cars which they update frequently on their website for more details.
If you are uncertain if your vehicle qualifies, the IRS can help by listing which models are on its approved vehicle list (this link opens in a new tab). They have also put together an FAQ page explaining which EVs qualify and their MSRP values.
However, until the Treasury Department provides final guidance regarding which battery components must be manufactured or assembled in North America and which critical minerals must come from within the U.S. to claim full advantage of this credit according to an IRS press release, you won’t be able to fully benefit from it and take full advantage of this incentive. Consequently, they won’t release their list of qualifying models until April 18th.
Once the Department of Treasury unveils their revised rules regarding battery manufacturing and mineral sourcing on April 18th, you will need to take additional steps in order to meet eligibility for its tax credits. Among others, at least half the value of an EV’s battery components must have been produced or assembled within North America, while 40% or more critical minerals must come from within US borders.
The Department of Treasury will issue a list of vehicles meeting these standards and their credit amounts, with many electric vehicles potentially qualifying for full $7,500 credits by March 2023; however, many manufacturers may still need time to comply with them, which was mentioned in the Inflation Reduction Act of 2022 as one reason why Treasury delayed publishing rules until now.
Charging infrastructure
Local and state governments across the nation are investing in charging infrastructure projects in schools, public spaces and other locations likely to be used by electric vehicles in order to take advantage of the tax credit for electric vehicles. Their investments should ultimately result in reduced carbon emissions, lower fuel costs for vehicles and more jobs being created.
California’s CALeVIP program provides guidance and funding for local governments to create or implement charging infrastructure incentive programs that meet regional needs. The program reviews proposed EVSE incentive programs as well as solicits feedback from stakeholders.
New York State offers the Charge Ready NY rebate program as an incentive for businesses, local governments and non-profit organizations who install Level 2 or DC fast chargers at eligible locations such as office buildings, shopping malls, apartment complexes, theaters or parks. This incentive applies only for purchases and installations made after September 2016.
Pacific Gas & Electric offers eligible commercial customers a rebate of up to $500 when installing a Level 2 EVSE system, while also providing Time of Use (TOU) rates for those charging their electric vehicles using electricity from their grid at times that best suit the system.
Antelope Valley Air Quality Management District (AVAQMD) offers grants covering up to 80% of public EVSE costs for public entities including local governments, school districts, and public transportation agencies. These grants may also be applied for by private organizations like utilities.
SMUD provides residential customers with up to $1,000 rebate towards electric vehicle charging equipment and installation costs through its Charge@Home rebate, while businesses may take advantage of SMUD’s Managed EV Charging program to charge at times when energy prices are more favorable to the grid.
Vermont’s State Infrastructure Bank provides loan assistance to municipalities, regional development corporations and political subdivisions of Vermont for public EVSE systems at competitive interest rates – typically one percent fixed for municipal loans and three percent for private-sector borrowers.
The federal government offers residents a tax credit for electric vehicle charger hardware and installation costs. This credit covers up to 30 percent of costs up to $1,000 and retroactively; therefore it can even apply for installations performed before 2017. For more information about the electric vehicle tax credit visit the Department of Treasury’s website.