Consumers who are now contemplating purchasing an electric vehicle may want to explore how tax incentives for zero-emissions vehicles operate and how they may impact future purchasing decisions.
The electric vehicle tax credit provisions of the Inflation Reduction Act passed into law in August 2022, will transform how Americans purchase vehicles and plug-in hybrids.
Inflation Reduction Act
Combined with state and municipal incentives, the new tax credits can reduce the price of purchasing a zero-emission car.
According to data conducted by Kelley Blue Book, the average transaction price for a new electric vehicle was around $65,000 in November, a roughly 9% increase over the previous year.
During the same time period, the average price of all automobiles, including gas-powered and electric models, was around $48,900.
- Extends $7,500 tax credit. The Inflation Reduction Act extends the present incentives of up to $7,500 in tax credits for qualified electric automobiles, plug-in hybrids, and hydrogen fuel cell vehicles. The federal government is continually revising the list of eligible automobiles.
- Upfront discount. In the future, you may be eligible to get your EV tax credit at the time of purchase for new cars; but, if the dealership does not give the credit immediately, you can still claim it on your taxes.
- Limits EV pricing. The new incentives limit eligible vehicles to low-emissions trucks, SUVs, and vans with a manufacturer’s suggested retail price of up to $80,000 and automobiles with a maximum MSRP of $55,000.
- No restrictions on manufacturers. Manufacturers such as GM and Tesla no longer had to limit incentives to the first 200,000 electric vehicles sold, as was the case under the previous tax credits, as of January 1, 2023.
- Rebate for used electric vehicles. A new $4,000 tax credit is available to anybody interested in purchasing a used electric vehicle for less than $25,000, subject to income and other conditions. Used vehicles must be at least two model years old to qualify. Additionally, the car must be acquired from a dealership.
- The car is only eligible once throughout its lifespan. Purchasers of used automobiles are only eligible for one credit every three years, and they must have an annual income of $75,000 or less, $112,500 or less for heads of household, or $150,000 or less for joint filers. The credit expires in 2032.
- Income limitations to qualify. The rebates are restricted to taxpayers with adjusted gross incomes of $150,000 or less, $225,000 or less if filing as head of household, and $300,000 or less if filing jointly.
- Ineligible autos become eligible. In addition, the proposal permits automakers like Tesla and General Motors, who had exhausted their allotted credits under the previous plan, to reapply for them in January 2023. However, many of their items would not qualify owing to price limitations on automobiles.
- New regulations regarding manufacturing sites. To be eligible for the subsidy, electric car batteries must be made in the United States, Canada, or Mexico, and their minerals and components must likewise be sourced from North America.
- Ineligible would be vehicles with battery components manufactured in China. Many existing EVs are disqualified under these standards. This need is implemented gradually. This implies that certain vehicles that are currently qualified may become ineligible if manufacturers do not alter their supply networks. However, the US Treasury Department postponed until March the implementation of regulations governing the origin of battery materials and components.
Some automobiles under lease may qualify. - Hydrogen fuel-cell automobiles remain eligible. The $7,500 credit is applicable to hydrogen fuel-cell vehicles such as the Toyota Mirai and Hyundai Nexo. However, they only make sense for purchasers who reside near one of the few hydrogen recharging facilities in the United States. The majority of these stations are located in California.
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Which Electric Vehicles Are Qualified For Tax Incentives?
According to the Internal Revenue Service of the United States, this is the most recent list of electric and plug-in hybrid cars that are eligible if purchased after January 1, 2023. Several manufacturers have not yet submitted information on specific suitable makes and models, and users are encouraged to check back for updates.
| Vehicle | MSRP Limit |
| Audi Q5 TFSI e Quattro PHEV | $80,000 |
| BMW 330e | $55,000 |
| BMW X5 eDrive 45e | $80,000 |
| Ford Escape PHEV | $80,000 |
| Ford E-Transit | $80,000 |
| Ford F-150 Lightning | $80,000 |
| Ford Mustang Mach-E | $55,000 |
| Lincoln Aviator Grand Touring | $80,000 |
| Lincoln Corsair Grand Touring | $55,000 |
| Chevrolet Bolt EV | $55,000 |
| Chevrolet Bolt EUV | $55,000 |
| Cadillac Lyriq | $55,000 |
| Nissan Leaf | $55,000 |
| Rivian R1S | $80,000 |
| Rivian R1T | $80,000 |
| Chrysler Pacifica PHEV | $80,000 |
| Jeep Wrangler 4xe | $80,000 |
| Jeep Grand Cherokee 4xe | $80,000 |
| Tesla Model 3 | $55,000 |
| Tesla Model Y 7-Seat Variant | $80,000 |
| Volkswagen ID.4 | $55,000 |
| Volvo S60 T8 Recharge PHEV | $55,000 |
Lastly, not only governments may assist you with the expense of a new electric vehicle. Several municipal electric utilities provide incentive schemes to encourage the purchase of electric vehicles. They are, after all, among those who gain when you convert gasoline dollars to power dollars.
Some offer automobile discounts. Others provide discounts or free installation on chargers when you enroll in off-peak charging schemes. For instance, the Nebraska Public Power District provides consumers who purchase a new electric vehicle a $4,000 discount.
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