The newly enacted Inflation Reduction Act, signed into law on August 16th, has multiple clean energy incentives and tax credits centered around purchasing an electric vehicle. But you may be left confused as to how the revived $7,500 Electric Vehicle Tax Credit works. This Tax Credit may sound familiar since it’s been offered before. Some manufacturers like Tesla, Toyota, and Chevy do not currently qualify for the tax credit because of the existing cap on the volume of cars sold. Under the new law, taking effect in 2023, this cap is no longer a restriction. So, if you are considering purchasing a new vehicle it might be worth waiting a few more months. Keep in mind, the Tax Credit comes with a new set of rules to consider.
Here’s an overview of the requirements to qualify for the $7,500 Tax Credit taking effect in 2023:
- The vehicle’s final assembly must be in North America
- Determining whether a car is manufactured in North America will be on a case-by-case basis, as some manufacturers change their production plans. The criteria go even deeper into the sourcing and manufacturing of the battery versus the components. The tax credit may be reduced if these assembly requirements are not fully met. The US Department of Energy compiled a list of vehicles that may qualify but it’s best for you to confirm with each manufacturer or to check the VIN Decoder website to be sure.
- The car buyer must meet certain income guidelines
- The new Act does impose income limits to qualify for the tax credit. If your Modified Adjusted Gross Income (MAGI) exceeds $150,000 (Single), $300,000 (Married Filing Jointly), or $225,000 (Head of Household), you will not be eligible for the tax credit. The law does, however, allow you to use the lower MAGI of the year you claim the tax credit or the prior year’s return.
- Only vehicles below certain price points are eligible
- The new Act limits the tax credit for vehicles with an MSRP below $55,000 for cars and $80,000 for vans, trucks, and SUVs. There are no phaseouts so this should be taken into consideration when you build out your vehicle and select add-on options.
For those that wait until 2024 to purchase, you will have the option of taking the tax break at the point-of-sale rather than waiting until you file your taxes. That would mean an immediate $7,500 savings off the price when you transfer the tax credit to the dealership. However, if you do not qualify for the tax credit based on the above requirements, be prepared to repay any advanced credit you receive come tax time.
We found a great resource at www.electrek.com which outlines what vehicles will likely qualify for the tax credit. Keep in mind the requirements may limit some buyers from claiming the tax credit, but the hope is it will encourage clean energy and make electric vehicles more accessible. The credits are active through the end of 2032, so you have plenty of time to decide if a new electric vehicle is right for you. And this gives manufactures time to adjust their production and pricing to meet the criteria.
I waited a LONG TIME to purchase my new electric vehicle. After being waitlisted for two years, I became the proud owner of the highly anticipated Tesla Model 3. At the time, the $7,500 tax credit was available, which made it worth the wait! If you have questions regarding the EV tax credit or are considering purchasing an electric vehicle, reach out to one of our financial advisors in Austin. We’d be happy to assist!