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Guide To Electric Vehicle Tax Credits

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Electric vehicles (EVs) are quickly becoming the go-to option for many car shoppers, and it's easy to see why. They are fun to drive, can be charged at home, and help reduce your carbon footprint. But there are some drawbacks, too. EVs can be more expensive than conventional gas-powered cars, and many people don't have access to high-powered charging stations at home or work.

With those benefits in mind, the new electric vehicle tax credit is a bright spot on the horizon that promises to increase the benefits associated with electric vehicles, and make them a realistic option for many car buyers.

The electric vehicle tax credit is a federal tax credit that helps offset the cost of purchasing an electric car. It allows consumers to buy new and used electric vehicles at a substantially reduced price, decreasing the total cost of ownership and increasing the savings associated with making the switch. The tax credit will also help boost the economy by creating jobs in the automotive industry, and raising consumer spending.

In this article we will highlight all of the details of this new electric vehicle tax credit, including when it will be available, what buyers will quality, what EVs are eligible, the changing battery requirements over time, and how to take advantage of these savings at the dealership.

What Is The New Tax Credit For Electric Vehicles?

Since 2010, the federal government has offered various kinds of tax-based benefits to those who purchase electric vehicles. These incentives are designed to lower the cost of EV ownership, and get buyers to consider an electric vehicle instead of its gas-powered competitor, helping to lower the greenhouse gas emissions associated with fossil fuel powered vehicles.

As part of The Inflation Reduction Act Of 2022, the federal government amended the EV tax credit that was formally called the Qualified Plug-In Electric Drive Motor Vehicle Credit (Internal Revenue Code 30D) to be called simply the Clean Vehicle Credit.

The Clean Vehicle Credit is valued at up to $7,500 for new EVs and $4,000 for used ones (previously, used EVs were not eligible) and extends the deadline for getting that tax credit for an additional decade (until 2032) rather than expiring on December 31, 2022 as originally scheduled.

This updated tax credit also expands availability to include manufacturers that had already used up their allotment of the previous EV tax credits, including GM, Toyota, and Tesla, which had previously been capped at 200,000 qualifying vehicles per manufacturer.

Lastly, the new law also allows buyers to use the EV credit as a direct payment for an EV purchase. This is a big win for EV buyers, because it means that even if you don’t owe federal taxes that could be offset with a credit, you can now apply that value directly to the purchase from a dealer, instead of having to wait for a refund check from Uncle Sam (which may take months).

What Is The Value Of The Clean Vehicle Credit?

The tax credit for electric vehicles is worth up to $7,500 for the purchase of a new EV, and $4,000 for the purchase of a used EV. Note that for used EVs, the value is the lower of either $4,000 or 30% of the vehicle’s value.

In addition to the federal tax credit, many states offer their own tax credits and ev incentives. The US Department of Energy’s Alternative Fuels Data Center is a great resource for electric vehicle shoppers to see what offers and programs might be available in their area.

When Will The Clean Vehicle Tax Credit Be Available?

To be eligible for the new tax credit, your electric vehicle must be purchased after August 16, 2022—the date that the Inflation Reduction Act of 2022 was signed into law.

The EV tax credit is currently scheduled to remain available until the end of 2023, although that date could change in the future as more buyers take advantage of the savings that are available.

Buyers That Qualify For The Clean Vehicle Tax Credit

There are a few income restrictions on who can qualify for the Clean Vehicle Credit.

For new car purchases, individuals must make an adjusted gross income of less than $150,000 per year, head-of-household filers must make less than $225,000 per year, and couples must have an annual household income of less than $300,000 per year.

For used electric vehicles, individuals must make less than $75,000 per year, head-of-household filers must make less than $112,500 per year, and couples must have an annual household income of less than $150,000 per year.

Electric Vehicles That Qualify For The Clean Vehicle Tax Credit

Generally, the tax credit will be available for qualifying all-electric vehicles where final assembly occurred in North America (called the “final assembly requirement”). For now, the Department of Energy has created a list of Model Year 2022 and early Model Year 2023 electric vehicles that may meet this new final assembly requirement, and have eligibility for the credit.

Notably, this list includes:

  • Audi Q5
  • BMW 330e
  • BMW X5
  • Cadillac Lyriq
  • Chevrolet Bolt EUV
  • Chevrolet Bolt EV
  • Chrysler Pacifica PHEV
  • Ford Escape PHEV
  • Ford F Series
  • Ford Mustang MACH E
  • Ford Transit Van
  • GMC Hummer Pickup
  • GMC Hummer SUV
  • Jeep Grand Cherokee PHEV
  • Jeep Wrangler PHEV
  • Lincoln Aviator PHEV
  • Lincoln Corsair Plug-in
  • Lucid Air
  • Mercedes EQS SUV
  • Nissan Leaf
  • Rivian EDV
  • Rivian R1S
  • Rivian R1T
  • Tesla Model 3
  • Tesla Model S
  • Tesla Model X
  • Tesla Model Y
  • Volvo S60

(In addition to this list of vehicles with final assembly in North America, the build location of a particular vehicle should be confirmed using the VIN code, or an information label affixed to the vehicle. The U.S. Department of Transportation's NHTSA provides a VIN Decoder that can be used to identify a vehicle's build plant and country of manufacture, along with other details about the vehicle.)

There is a limit on the value of the EV that will qualify. For new electric vehicles, you won’t be able to claim a credit for any EV sedan with a manufacturer suggested retail price (MSRP) over $55,000, or $80,000 for trucks, vans, and SUVs. For used electric vehicles, you can’t claim a credit on any vehicle that costs over $25,000 (although used EVs don’t have to follow the final assembly requirement).

Used electric vehicles must be at least 2 years old to qualify for the tax credit, and each used vehicle can only qualify for the subsidy once, to prevent abuse of the system.

Plug-in Hybrid EVs (PHEVs) will continue to qualify for an electric vehicle rebate, as long as they have a battery capacity over 7kWh, and meet the same battery requirements as pure EVs.

In terms of batteries, the traction battery must be at least seven kilowatt-hours (kWh), and there are sourcing requirements for critical mineral extraction, processing, and recycling, and battery component manufacturing and assembly. The critical mineral requirements are worth $3,750, and the battery component requirements are worth $3,750, so that vehicles meeting both the critical mineral and the battery component requirements are eligible for the total tax credit of up to $7,500.

Critical Minerals in EV Batteries

In order to be eligible for the $3,750 ‘critical minerals’ portion of the Clean Vehicle Credit, a certain percentage of the value of the battery’s “critical minerals” must be extracted or processed in the United States, or a U.S. free-trade agreement partner, or recycled in North America.

The exact percentage will increase over time according to the following schedule:

Year Critical Mineral Minimum Percent
2023 40%
2024 50%
2025 60%
2026 70%
2027 and Later 80%

EV Battery Components

In order to be eligible for the $3,750 ‘battery components’ portion of the Clean Vehicle Credit, a certain percentage of the value of the battery’s components must be manufactured or assembled in North America.

The exact percentage will increase over time according to the following schedule:

Year Battery Components Minimum Percent
2023 50%
2024 and 2025 60%
2026 70%
2027 80%
2028 90%
2029 and Later 100%

As you can see, these are aggressive timelines that will force manufacturers to re-think the way that they source and assemble battery minerals and components, but the goal is to shift manufacturing into the United States to help create local jobs and support our domestic economy.

Immediate Savings With A Direct Credit At EV Dealers

As of January 1, 2023, you will be able to use this tax credit at a dealer as a direct credit at time of sale. In fact, many dealers are expected to specifically advertise programs to help consumers use the federal tax credit to save more on new and used electric cars, as this method allows you to save money upfront, without having to wait months to receive your tax rebate check.

In order to be used as a direct credit, the dealer must disclose the original MSRP of the vehicle, along with any applicable tax credit amount that is being applied, and the amount of any other programs or tax incentives that may be available and applicable to the purchase.

Impact On The Economy From Electric Vehicle Tax Credits

By connecting electric vehicle tax credits with US manufacturing, the goal is to both stimulate the purchase of new and used electric vehicles in place of gas-powered vehicles, and also motivate manufacturers to bring their facilities into the United States. If they don’t, they risk being out-sold by manufacturers that have US facilities, and can use the tax credit to make their products more affordable than the competition.

This should create many new jobs in the electric vehicle and EV battery industries, which will also create new jobs in supporting industries like EV charging, service, and maintenance.

In addition to creating jobs, the increase in EV sales should continue to help improve EV efficiency, as automakers invest in more efficient electric motors and other technologies such as regenerative braking. That could result in even lower greenhouse gas emissions per mile driven than traditional vehicles. (And way fewer greenhouse gas emissions if those efficient EVs are recharged using the clean, green energy provided by solar panels.)

Guide To Electric Vehicle Tax Credits

The US has a new federal tax credit, called the Clean Vehicle Credit, that allows consumers to purchase new and used electric vehicles at a substantially reduced price. This new electric vehicle tax credit will make it easier to get an EV by lowering your total cost, and increasing your access to purchasing incentives.

The effect may not be immediate, but it is expected to be significant. The new tax credit will help develop more affordable electric cars, and improve the supporting infrastructure.

Because consumers can use the credit to offset the EV cost, it will make new models more affordable, and encourage more EV owners to ‘trade up’ which puts more used EVs on the market.

The tax credits will also help create local jobs in the automotive industry, and increase consumer spending by making it easier for people to purchase a new car.

If you’re interested in powering your new electric vehicle with clean solar energy, you can get a Free Solar Design and Savings Estimate from Palmetto. We’ll verify that your house is a good fit for solar, and then provide you with information about how big of a system you might need, and how much you might save.

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