If you are thinking about getting an electric or plug-in hybrid car for EV tax credits, there is some good news and bad news.
The good news is that the newly enacted Inflation Reduction Act includes a wholly revamped tax credit for electric vehicles that started in 2023 and continues through 2032. This is good because at least these tax credits will be consistent for the next nine years.
The bad news is that the credit, now called the clean vehicle credit, comes with many new restrictions that may not qualify your future EV purchases. You can use this information to find out whether your future EV will qualify for the incentive.
EV Credit Limits and Manufacturing Requirements
The clean vehicle credit remains at a maximum of $7,500. But, beginning in 2023, to qualify for the credit,
- you will need an adjusted gross income of $300,000 or less for those married filing jointly or $150,000 or less for singles; and
- you will need to buy an electric vehicle with a manufacturer’s suggested retail price below $80,000 for vans, SUVs, and pickup trucks, or $55,000 for other vehicles.
That, however, is not all. 2023 and later credits include new requirements for domestic assembly and battery sourcing.
The new law lowers or eliminates the federal tax credit when the electric vehicle fails to meet battery sourcing standards. No electric car can take advantage of the entire $7,500 tax credit at the moment. This is changing, albeit slowly. Manufacturers are working hard to reverse it; however, it may take a few years.
The new credit is not entirely negative; it lifts the manufacturer limit to 200,000 electric vehicles. The new credit is available for popular electric vehicles made by GM, Toyota, and Tesla if certain prices and other requirements are met.
Additional Electric Vehicle Related Tax Credits
Starting in 2024, you can qualify for a credit of up to $4,000 when purchasing certain used electric vehicles from dealers (not individuals). However, the above-mentioned income cap will also be applied for this credit.
Also, starting in 2024, you will be able to transfer your credit to the dealer in return for a cash rebate or price reduction. This means you can get the benefits of this credit right away, instead of waiting until you file your taxes.
If you have questions about the new Inflation Reduction Act and what it could mean for your business, do not hesitate to contact Jose A. Ramirez. He is a tax specialist who can help you understand how this act may benefit your company. With the right planning, you may be able to take advantage of some significant tax breaks in the years ahead! Click here to schedule a consultation.