Electric Vehicle Tax Credits

Electric vehicle tax credits are an important piece of the new Inflation Reduction Act. These credits will promote the purchase of both new as well as used EVs. Buyers of new electric vehicles can receive up to $7,500 in federal tax credits. Buyers of used vehicles can get up to $4,000. But these new credits aren’t all good news as many vehicles which previously qualified for credits are no longer eligible. In addition, the more complicated qualifications are somewhat confusing for consumers. So let’s take a look at the new credit, what’s changed, what vehicles qualify, and more!….

The Inflation Reduction Act of 2022 establishes a new set of rules to determine which electric vehicles qualify for a tax credit. The previously available Plug-In Electric Drive Vehicle Credit (IRC 30D) has been modified by this new act and will be phased out soon. Anyone who has entered into a binding contract to purchase an electric vehicle before August 16, 2022 will still qualify for the old credit. To qualify for the new credit, you must take delivery no earlier than January 1, 2023. The credit is set up to last until the end of 2032 (10 years).

The sales cap of 200,000 vehicles no longer applies in the new bill, but many vehicles will be disqualified based on their assembly location, battery material sources, price, and other factors. This is great news for Tesla and GM who both surpassed the 200k sales cap from the previous rules. It’s bad news for some manufacturers like Rivian and Fisker whose vehicles qualified for the previous credit, but not for the new one (in most cases). Based on the new rules, assembly location, battery mineral source country, and MSRP will disqualify many vehicles.

Based on the information that we have now, we can only make an educated guess about which vehicles will qualify for credits. This is due to the complicated limitations and unavailable material source data. In addition, the new bill does not establish which vehicles qualify. This determination will be made by the IRS by the end of 2022. For these reasons we have chosen to wait on releasing a list of the eligible vehicles. We will provide this information once it is made available. We will also update this post if any information regarding the credits changes.

The new credits will start out as regular tax credits, but they will be moving to a direct rebate sometime in 2024. The direct rebate will happen at the point of sale (dealership) and the rebate can be directly subtracted from the vehicle price. This will be a great option for consumers as it lowers the initial out of pocket costs and provides an immediate financial impact. Still a bit confused about the details of the new credits? Don’t worry, we’re going to break down the main points of the new credit including the qualifications, disqualifications, limitations, and more.

Here are some of the key details of the new credits:

New Electric Vehicle Tax Credit

  • Up to $7,500 for new electric vehicles which meet all requirements
  • Price limits of $55,000 for sedans and $80,000 for SUVs and trucks
  • Income limit of $150k for individuals, $225k for head of household, and $300k for joint filers
  • This credit will start in 2023 and change to a point-of-sale rebate in 2024
  • Starting in 2024 batteries made with components from Russia or China are disqualified
  • Starting in 2024 a minimum of 40 percent of materials must be sourced from North America or a US trade partner
  • Starting in 2025 batteries made with battery minerals from Russia or China are disqualified (requirement will not apply to used vehicles)
  • Starting in 2029, all battery components must be fully made in North America.

Used Electric Vehicle Tax Credit

  • Up to $4,000 for used electric vehicles (Limited to 30% of the vehicle sale price)
  • Price limit of $25,000
  • Must be purchased from a dealer
  • Income limit of $75k for individuals, $112,500 for head of household, and $150k for joint filers
  • This credit will start in 2024
  • Must be purchased for personal use (not for resale)

EV Charger Tax Credit

  • 30% of the installed cost of charging equipment (maximum of $1,000)

Additional Savings

Now that you know about the savings from the tax credits/rebates, we recommend that you explore more ways to save by driving an EV with our EV Savings Calculator. It uses your actual usage costs to calculate your total potential savings from switching to an electric car.