The quintessence of the new electric car tax credit game.
Big changes are coming to the federal electric car tax credit with Congress passing the Inflation Cut Act, changes that could eventually make owning an electric vehicle easier, but Hard to get one at first. The details are more complicated than ever, but can make a huge difference in electric vehicle adoption. Here’s what you need to know as President Joe Biden prepares to sign the new legislation.
First, good news for buyers looking to buy electric vehicle
Credit extended until 2032
The new rules allow a $7,500 federal tax credit back for full battery or advanced plug-in hybrid through 2032. The groundbreaking ruling protects a program that’s been in place since 2010 and has been targeted for removal by some politicians and at least one oil industry as a gift of solace to electric carmakers and more affluent car buyers.
No popularity penalty
The new rule removes the cap that would stop the tax credit for auto brands that sold 200,000 of his covered electric passenger cars. This “popularity penalty” has been criticized by automakers such as Tesla and GM. Those automakers sold over 200,000 long ago, and now he’s effectively a $7,500 handicap. Ford and Toyota are also phasing out tax credits. There are economic and industrial arguments on both sides, but removing the 200,000 cap is a clear advantage for car buyers who want to select only the cheapest car. Tesla’s ordering page for federal tax credit It’s been a while since it was mentioned. This could change soon.
If you choose a qualifying electric vehicle, the tax credit can be immediately applied to the car dealer by allocating the credit to the car dealer at the time of contract, as buyers often do with manufacturer discounts. This eliminates the need to wait until Tax Day to receive benefits. You must qualify for the credit at the time of tax payment, or the IRS can take back some or all of the amount, but a simple calculation on the back of the envelope should make that clear at the time of purchase
As a bonus for the good guys, the new rules are getting more complicated.
Limits on purchase price
You don’t have to get paid to buy a Porsche Tay can or a Tesla Model S. The new rule only applies to cars under $55,000 or SUVs and light trucks under $80,000. Automakers need to sleep a bit on this because buyers are less cost sensitive beyond those price points, but in May the median new car purchase price in the U.S. hit $48,000. It is worth noting that it rose dramatically to near. I remember when the rap lyrics boasted that he drives a $50,000 car. Now it might be a Toyota Sienna.
Income limit of buyer
These limits on the cost of a car have been largely superseded by new limits on the income level of buyers. The EV tax credit is available only to purchasers whose adjusted gross income for the purchase year of an applicant is less than or equal to her $150,000. $225,000 for the head of household. $300,000 if he files a joint statement. These aren’t exactly poverty incomes, but they do exclude some of the most dedicated EV evangelists in the richest metropolitan areas (PDF).
The next set of hurdles is spectacle politics in international trade.
Built in America or wherever we want
Regardless of the vehicle’s cost or income, a car with a battery assembled or made from “foreign company of concern” materials will be in hot water. Such things are well beyond my expertise, but the law firm White & Case redlines countries designated in the Infrastructure Investment and Employment Act, including China, Russia, Iran, and North Korea. The ban stands out in an auto industry that relies heavily on China and perhaps explains why it won’t come into force until December 31, 2024.
Chevy Bolt EUV
Although the Chevy Bolt is assembled in the USA, it is not eligible for federal tax credit unless at least 40% of its battery content is from the USA or one of its free trade partners.
Complementing this requirement is a new requirement requiring that eligible electric vehicles be assembled in North America, across a number of plants in Mexico, the United States and Canada. Cars sold in the US have long had window decals indicating where the major assemblies were assembled, so this is not a strange concept at all.
But wait. We have others, too.
Overlaps in the previous two new rules affect the critical material content of eligible electric vehicles. 40% of that must come from US sources or countries with which the US has free trade agreements. Its procurement rate will increase to 50% by 2024, 60% by 2025, 70% by 2026 and 80% by 2027. Tesla is one of the automakers that have been busy securing battery supply deals as much as possible these days.
If you are big fab of the latest generation used cars you can get thrilled with the $4,000 or 30% tax credit on the purchase price of a used EV under $25,000. A used vehicle purchaser has an individual purchaser income limit of $75,000 for him if he is a single applicant, $112,500 for him if he is a head of household, and $150,000 for him if he is a joint applicant.
New rule is not just pure electrification
The new program also includes plug-in his hybrid vehicles, as long as they have a battery with a capacity of 7 kWh or more. That’s comparable to vehicles like his 2022 Toyota RAV4 Prime PHEV and In’s Ford Escape PHEV, which have an 18-kWh battery. At 14 kWh in 2022, it will easily surpass batteries. But be careful with older plug-in hybrids. Due to the small battery, the effect may not be sufficient. The IRS maintains a list of all plug-in vehicles that qualify for federal tax credits.
2021 Toyota RAV4 Prime
The Toyota RAV4 Prime is a plug-in hybrid and could qualify for a healthy federal tax credit as well as a pure electric vehicle.
And remember, these are tax credits that directly reduce the amount of tax you owe on your annual income, not additional amounts you owe at tax. This is very different from a regular income tax deduction. This can reduce the amount of income you have to pay taxes on. These EV tax credits are considered to be a much more effective money-saving tool, but they only allow you to pay zero income tax for the year. Refunds cannot be created.
Tell us what’s your view regarding this new tax credit rules in US in our comment section below.
Follow KNOWMYEV on its every social handle to get updates regarding the new launch on electric vehicle including bikes, sedan cars, SUV, wagons and so on. Like us on FACEBOOK, INSTAGRAM , TIKTOK AND TWITTER .