Electric Vehicle Incentives in the Inflation Reduction Act

Clean Vehicle Tax Credits

These electric “go-green” vehicles don’t use gas-powered engines, allowing you to save potentially thousands of dollars each year on gas alone. And with the Infrastructure Investment and Jobs Act allocation of $7.5 billion to states and local governments to help increase public charging station availability nationwide, consumers should find it easier to adopt energy efficient cars.

In addition, you may qualify for a Clean Vehicle Credit (formerly Plug-In Electric Vehicle Credit). Though there were some changes to the credit as a result of the Inflation Reduction Act of 2022, the maximum amount of the credit remains $7,500 for new vehicles and $4,000 for used vehicles. If you find yourself in the market for a go-green vehicle note there are significant hurdles you’ll have to overcome to qualify for the new Clean Vehicle Credit:

MSRP Hurdle

• New clean cars must have a manufacturer’s suggested retail price (“MSRP”) of no more than $55,000.
• New clean vans, pickup trucks, and SUVs must have an MSRP of no more than $80,000.
• Used clean vehicles must cost no more than $25,000.

Income Hurdle

• For a new clean vehicle, your adjusted gross income must be less than $150,000 if single, $225,000 if head of household, or $300,000 if married.*
• For a used clean vehicle, your adjusted gross income must be less than $75,000 if single, $112,500 if head of household, or $150,000 if married.*

*The new income thresholds are effective December 31, 2022, If you income is excess of that mentioned above, you may consider a purchase prior to year-end to take advantage of any remaining credits.

Domestic Production Hurdle

• The final assembly of a new clean vehicle must occur in North America as of August 16, 2022.
• Starting in 2023, at least 40% of critical battery minerals and 50% of battery components must be recycled, mined, or manufactured in the U.S.
• Many automakers are unsure whether they will be able to meet this criteria as the new law is currently written.

What You Can Do

• Wait until 2023 to buy Tesla and GM vehicles. Because Tesla and General Motors have both crossed the 200,000 electronic vehicle threshold, any Tesla or GM vehicle purchased in 2022 won’t qualify for the tax credit. Starting in 2023, certain Tesla and GM vehicles will once again qualify for the credit once the 200,000 limit is removed.
• Government to release further guidance. There are still many unanswered questions about how the new Clean Vehicle Credit will be implemented. The federal government plans to release further guidance by the end of the year that hopefully answers some of these questions.

IRS.gov provides an index of manufacturers to help you determine if a particular brand and model year qualifies for the tax benefit. The Department of Energy provides a list of model year 2022 and early model year 2023 electric vehicles that meet the final assembly requirement. And keep in mind that beginning with vehicles acquired after 2023, purchasers may transfer the credit to the dealer (meaning the credit could be applied to lower your cash outlay for the car rather than waiting to receive the benefit when you file your tax return).

The manufacturing restrictions written into the bill make most currently available electric vehicles ineligible for the credit. The new rules also allow for a 30% credit for commercial vehicles that meet certain qualifications.

There will be more details on how to obtain these credits in the future. As always, planning ahead can help you maximize your financial situation and position you for greater success.

Please contact our office at (972) 503-1040 if you’re considering a purchase a clean vehicle to discuss how these credits may apply to you.