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The start of the new year means the launch of new electric vehicle tax incentives in the United States. Previously, the IRS allowed taxpayers to claim tax credits of up to $7,500 for new plug-in vehicles. The exact amount is determined by the battery capacity (kWh). Additionally, the credit was designed to expire once the manufacturer sold 200,000 of his plug-ins, a milestone only Tesla and General Motors had reached.
However, the Inflation Reduction Act (IRA) of 2022 rewrote the tax incentives for plug-in vehicles, and the new rules went into effect at the beginning of January. The tax credit currently covers “clean vehicles” rather than plug-ins, which includes fuel cell EVs, some plug-in hybrid EVs, and all battery EVs.
However, it is now a more complex beast. The maximum tax credit is still $7,500, but to qualify, the vehicle must have a battery capacity of 7 kWh or more, a gross vehicle weight rating of less than 14,000 lbs, and be final assembled in North America . There is a price cap, vans, SUVs and pickup trucks he cannot exceed $80,000 and other vehicles he must be less than $55,000. There is also an income cap of $300,000 for a couple filing jointly, $225,000 for the head of household, and $150,000 for other tax filers.
As before, this is a tax deduction. That means you must pay at least as much tax as the deductible in the year you bought the car. If your total federal tax liability for the year is less than $7,500, you can only claim a deduction equal to that liability.
There are also tax credits for commercial clean vehicles, used clean vehicles, and leased vehicles. We’ll explain how these work later in this article.
made in usa
When the law passed last year, the most controversial change to EV tax credit rules concerned where battery components are manufactured and assembled. Half of the credits (up to $3,750) are tied to the procurement of critical minerals for the battery. These minerals must be extracted or processed in the United States or countries with which we have free trade agreements. By 2023, that amount should be at least 40%, with an annual increase of 10% after 2027, and at least 80% of these important minerals should be extracted or processed in the United States or a free trade partner country. there is.
The remaining $3,750 relates to the percentage of battery components manufactured or assembled in North America. This again will start at 50% of the value of the various components of the battery in 2023, 60% in 2024-2025, 70% in 2026 and he will increase by 10% each year after 2029. I will continue. If the full value of battery components must be manufactured or assembled in North America.
Beyond that, some conditions mean that from 2024, some vehicles will be excluded from credit if they use battery components from foreign entities of concern.
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That’s what the law says, but that’s not what the IRS is currently enforcing. and said it would not provide guidance on parts sourcing until March.
At least until then, all qualifying clean vehicles should qualify for the full $7,500 credit, but which ones?
