Electric Vehicle & Hybrid Tax Credits: What To Know About The Inflation Reduction Act
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The Inflation Reduction Act of 2022, signed into law on August 16, 2022, is designed to reduce the deficit and inflation by lowering healthcare costs, combating climate change, and increasing taxes for larger corporations. Overall, this act is a big win for electric vehicles (EV), plug-in hybrid electric vehicles (PHEV), and consumers, thanks to the array of supportive incentives.
However, there have been amendments to previous incentives, and introducing new incentives has confused consumers. Despite the confusion, consumers can benefit from the Inflation Reduction Act through the electric vehicle tax credits.
For today’s post, we’ll talk about the EV tax credits that come with this significant legislative package, including key provisions, requirements, eligibility, and more.
Eligibility Rules for Electric / Hybrid Tax Credits (Effective January 1, 2023)
If you purchased a new plug-in electric vehicle or fuel cell vehicle in 2023 or after, you’re eligible for a new clean vehicle tax credit. A clean car means an eligible new vehicle placed in service on or after January 1, 2023. Under the Internal Revenue Code Section 30D, clean vehicle buyers may qualify for a credit of up to $7,500.
In general, to qualify for the tax credit, consumers and vehicles must meet the following requirements:
- The vehicle purchase is not for resale purposes.
- The new vehicle is eligible for half the tax credit ($3,751) if it has battery components manufactured and assembled in the United States.
- The new vehicle is eligible for the other half of the credit ($3,750) when it has critical minerals processed in the U.S. or countries that the U.S. has a free trade agreement.
- The vehicle has undergone final assembly in North America.
- Eligible vehicles have an MSRP cap, and as follows: Vans, SUVs, and Pickup Trucks ($80,000), and Other Cars ($55,000).
- Consumers also have an income cap to be eligible, and as follows: Joint filers ($300,000), head of household ($225,000), and single filers ($150,000).
- The battery components and critical mineral requirements are effective January 1, 2023.
- In 2024, credit transfer to the dealer point of sale becomes available.
Note that credit expires and is no longer available after December 31, 2023. On a related note, MSRP refers to the suggested retail price by the dealer, not necessarily the amount paid for the vehicle.
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Eligibility Rules for Used Electric / Hybrid Tax Credits
The IRS also provides an unprecedented tax credit for used EVs, with a lower maximum credit of $4,000. In addition, the used vehicle purchase must be made after 2023 to be eligible. Buyers should meet the following requirements to qualify for a used qualified plug-in electric vehicle or fuel cell vehicle:
- You must buy the used vehicle from a qualified dealer for under $25,000.
- The purchase must not be for resale purposes.
- The vehicle’s model year must be at least two years earlier than the year of purchase. For instance, a used car purchased in 2023 must be a 2021 model year or older.
- Similar to the new clean vehicle credit, the used clean vehicle credit has income caps: Joint filers ($150,000), head of household ($112,500), and other filers ($75,000).
- Only one credit per vehicle.
- The tax credit for used vehicles is effective January 1, 2023.
- The vehicle should weigh less than 14,000 pounds.
- The EV or FCV vehicle should have a battery capacity of at least 7-kilowatt hours.
- The vehicle should be used primarily in the United States.
EVs and PHEVs That May Qualify for Clean Vehicle Credit in 2023
Consumer Reports published a list of EVs and PHEVs that are currently eligible for a tax credit between $3,751 and $7,500. Below are the eligible vehicles in 2023, provided that all other requirements are met like consumer income and MSRP caps:
- Audi Q5 TFSI e Quattro PHEV
- BMW 330e
- BMW X5 xDrive45e
- Cadillac Lyriq
- Chevrolet Bolt hatchback
- Chevrolet Bolt EUV hatchback
- Chrysler Pacifica PHEV
- Ford Escape PHEV
- Ford E-Transit
- Ford F-150 Lightning
- Ford Mustang Mach-E
- Jeep Wrangler 4xe PHEV
- Jeep Grand Cherokee 4xe PHEV
- Lincoln Aviator Grand Touring PHEV
- Lincoln Corsair Grand Touring PHEV
- Nissan Leaf
- Rivian R1S SUV
- Rivian R1T
- Tesla Model 3
- Tesla Model Y
- Volkswagen ID.4
- Volvo S60
The IRS has listed the New Qualified Clean Vehicles and Qualified Used Clean Vehicles, which we highly recommend checking out regularly for updates. According to the IRS, manufacturers like GM, Honda, Toyota, Hyundai, Subaru, Proterra, Mitsubishi, Mazda, Polestar, etc., have entered into an agreement to become a “qualified manufacturer,” but have yet to submit their vehicles to the list of new and used cars.
As of February 3, 2023, Yahoo reports that Tesla’s shares are rising as the IRS has updated its SUV criteria, now qualifying the Tesla Model Y for tax credit eligibility.
Updated List of EVs Eligible for Tax Credits [4/25/2023]
The US Treasury Department has recently released a list of EVs and PHEVs that qualify for the full EV tax credits ($7,500) and which models qualify for half credit ($3,750). Here’s the full updated list of qualified EVs and PHEVs and their corresponding credit amount:
- Cadillac Lyriq: $7,500
- Chevrolet Blazer EV: $7,500
- Chevrolet Bolt: $7,500
- Chevrolet Bolt EUV: $7,500
- Chevrolet Equinox EV: $7,500
- Chevrolet Silverado EV: $7,500
- Chrysler Pacifica PHEV: $7,500
- Ford E-Transit: $3,750
- Ford Escape PHEV: $3,750
- Ford F-150 Lightning: $7,500 (Standard and Extended Range batteries)
- Ford Mustang Mach-E: $3,750 (Standard and Extended Range batteries)
- Jeep Grand Cherokee PHEV 4xe: $3,750
- Jeep Wrangler PHEV 4xe: $3,750
- Lincoln Aviator Grand Touring PHEV: $7,500
- Lincoln Corsair Grand Touring PHEV: $3,750
- Tesla Model 3: $7,500 (Performance); $3,750 (Standard Range RWD)
- Tesla Model Y: $7,500 (for AWD, Long Range AWD, and Performance)
We’ll update this list as needed. Alternatively, FuelEconomy.gov has provided a list of requirements and a web-based tool to determine if your vehicle qualifies for EV tax credits and the amount.
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Frequently Asked Questions
1. How do I know if my vehicle qualifies for the electric vehicle credits?
A: One of the easiest ways to determine if your vehicle is qualified is by using the Department of Energy website. There are three categories your vehicle may fall into based on the purchase date: Purchased before August 17, 2022, Purchased between August 17 and December 31, 2022, and Vehicles placed in service after December 31, 2022.
Scroll down to the bottom of the page and use the VIN decoder to determine if your vehicle is qualified for the tax credit.
2. How do I claim my new or used electric vehicle credits?
A: To claim your federal tax credit, you’ll need to complete Form 8936 (Qualified Plug-In Electric Drive Motor Vehicle Credit) and file it with your tax return for the year you took ownership of the vehicle. You’ll be asked to provide the vehicle identification number (VIN) on the form.
3. Can I apply the hybrid tax credits at the point of purchase?
A: Yes, but only after January 31, 2023. Starting in 2024, clean vehicle buyers can apply credit at the point of sale by “transferring” the credit to a registered or qualified dealer. As of this writing, the IRS has yet to release documentation about the mechanics of processing the credit at the point of sale. We expect more information on how this works in the future.
4. Will I receive the full $7,500 for my clean vehicle?
A: For new clean vehicles, the $7,500 will be split into two parts. The two main requirements to receive the full credit are your vehicle should have battery components made and assembled in America, and it should have critical minerals processed in the U.S. or in countries where there’s a free trade agreement with the U.S.
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