As always, the devil is in the details
The past recently Inflation Reduction Act of 2022 has many important implications for the sustainability of the country. One of the most intriguing changes for car buyers is a revamped electric vehicle (EV) tax credit. Here’s everything potential EV buyers need to know about it.
How Much EV Tax Credit Can You Get?
The new EV tax credit, like its predecessor, offer up to $7,500 for electric passenger cars and light trucks. However, not everyone who applies will receive the full $7,500.
By January 1, 2023, EV buyers will receive $2,500 for an EV with a battery capacity of at least 5 kilowatt hours (kWh). They will receive an additional $417 for each kWh over that minimum, capped at $7,500.
After January 1, 2023, the way these credits work will change. You will be able to get $3,750 for the purchase of electric vehicles with at least 40% of the minerals in their battery sourced or recycled in the United States. You will get the other half of the credit if at least 50% final assembly of the battery components occur in the United States
A tax credit also applies to used electric vehicles. The new system offers either 30% of the vehicle’s value or $4,000, whichever is less.
These changes mean a higher minimum tax reward for electric vehicle buyers, although they also narrow the scope of vehicles eligible for these credits. Shoppers looking for more savings can make other sustainable purchases. For example, you can get up to $300 to install efficient water heaters in your home.
How do I qualify for the EV tax credit?
For new cars, buyers’ modified adjusted gross income (MAGI) must be less than or equal to $150,000 for individual filers. Married couples filing jointly can have incomes of up to $300,000, and individuals filing as head of household must have a MAGI of less than $225,000.
Used electric vehicles are slightly different, with a maximum MAGI for single ratepayers of $75,000. The maximum MAGI for joint filers is $150,000 and the MAGI for heads of household must not exceed $112,500.
When does the tax credit take effect?
It is important to note that EV tax credit requirements will change over time. The first change to take effect is the final assembly rule, which began on August 16, 2022. From then until January 1, 2023, EV Credits will operate mostly as before, but 50% of battery components must be from the United States.
On January 1, 2023, the new tax credit system and income restrictions come into effect, as do the initial regulations on minerals and battery components. However, these will change.
The percentage requirement for minerals from the United States will increase to 50% in 2024, then 60% in 2025, 70% in 2026 and 80% in 2027. Similarly, components whose final assembly must take place in the United States States will increase to 60% in 2024, 70% in 2026, 80% in 2027, 90% in 2028 and 100% in 2029.
Which cars are eligible for the tax credit?
With 65% of the world’s cobalt supply coming from the Democratic Republic of Congo, many EVs today do not meet the new standards. Vehicles will also lose eligibility when at least 200,000 of them are sold in the United States. The Department of Energy has a provisional list of eligible vehicles you can use to see if the car you want is eligible.
[Ed note: GM and Tesla have already hit the manufacturer sales cap so their models are off the incentive list. Plug-in hybrids (PHEVs) are eligible and make up a good portion of the list). Full electrics on the current list include three Fords (F-150 Lightning, Mustang Mach-E, E-Transit), Lucid Air, Nissan Leaf, three Rivians (EDV, R1S, R1T) and the Mercedes EQS SUV that just started production in Alabama.]
New tax credits could boost U.S. electric vehicle production
These new regulations are encouraging automakers to manufacture more electric vehicles in the United States. As more people take advantage of these tax credits, the production of electric vehicles in the United States could increase. Drivers looking to purchase these vehicles can also earn higher rewards, helping transportation go green.
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Own fleet report tests of eligible vehicles:
Flash player: Ford F-150 Lightning
Road test: Ford Mustang Mach-E GT
Road test: Ford Mustang Mach-E
Flash player: Lucid Air Dream Edition
Travel by car: Nissan Leaf
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