Starting January 1, many Americans will be eligible for tax credits of up to $7,500 on the purchase of electric vehicles. The credits are part of changes enacted in the Inflation Reduction Act, designed to boost EV sales and reduce greenhouse gas emissions.
But a tangle of requirements, including where the cars and batteries are produced, casts doubt on whether the company will receive the full $7,500 credit next year.
of Ministry of Finance has published more information about which vehicles are eligible and how individuals and businesses can access the credit from 2023.
However, for at least the first two months of 2023, Ministry of Finance‘s new benefits rules may temporarily make full credit available to consumers who meet certain income and price limits.
The new law also provides smaller credits for people buying used EVs.
Certain EV brands that were eligible for separate tax credits that began in 2010 and ended this year may not qualify for the new tax credits. For example, some EV models made by Kia, Hyundai and Audi are not eligible at all because they are made outside of North America.
The new tax credit, which runs until 2032, aims to make zero-emission vehicles affordable to more people. Let’s take a closer look at this.
New for 2023
Up to $7,500 in credits are available for those who purchase certain new electric vehicles, as well as select plug-in gas-electric hybrids and hydrogen fuel cell vehicles. A $4,000 credit is offered to anyone who purchases a battery-powered used car.
But the question of which vehicles and buyers qualify for the credit is complex and remains uncertain until the Treasury Department issues proposed regulations in March.
What is known so far is that new EVs must be built in North America to qualify for the credit. Additionally, caps on vehicle prices and buyer income are intended to disqualify wealthy buyers.
From March, complex regulations will also apply to battery components. 40% of battery minerals must be sourced from North America or countries with a US free trade agreement, or recycled in North America. (That threshold ends up being 80%.)
Also, 50% of the battery components must be manufactured or assembled in North America, ending up with 100%.
After 2025, battery minerals will no longer be available from “foreign concerns,” primarily from China and Russia. After 2024, battery components will no longer be available in these countries. This is a thorny obstacle for the auto industry as much EV metal and parts are now sourced from China.
There are also battery size requirements.
Which vehicles are eligible?
It’s not entirely clear because there are many uncertainties left.However Ministry of Finance We have released a list of vehicles that meet the requirements to claim the new clean vehicle tax credit starting January 1.
General Motors and Tesla We build the most EVs in North America. Both manufacture their batteries in the United States, but due to requirements regarding where batteries, minerals and parts are manufactured, buyers of these vehicles may initially only receive a half tax credit ($3,750). High. GM says eligible EVs must qualify for the $3,750 credit by March, with the full credit available in 2025.
However, until the Treasury Department issues its regulations, it will be exempt from the requirement to control the sources of minerals and components. This allows a qualifying purchaser to receive the full $7,500 tax credit for qualifying models in early 2023.
According to the Department of Energy, 29 EV and plug-in models were built in North America in the 2022 and 2023 model years. Audi, BMW, Chevrolet, Chrysler, Ford, GMC, Jeep, Lincoln, Lucid, Nissan, Rivian, Tesla, Volvo, Cadillac, Mercedes, Volkswagen. However, due to price restrictions and battery size requirements, not all of these vehicle models are eligible for credit.
what about the price?
To qualify, the new electric sedan sticker price cannot exceed $55,000. Pickup trucks, SUVs and vans cannot exceed $80,000.This disqualifies the 2 with the higher prices Tesla model.but Tesla‘s top-selling Models 3 and Y are covered, but options could push these vehicles over the price limit.
The average EV currently costs over $65,000, according to the Kelley Blue Book, but lower-priced models are on the rise.
Am I eligible for credit?
It depends on your income. For new EVs, the purchaser cannot have an adjusted gross income exceeding $150,000 for single, $300,000 for joint applications, or $225,000 for head of household.
For a used EV, a purchaser cannot exceed $75,000 for a single, $150,000 for a joint application, or $112,500 for a head of household.
How are credits paid?
The first will apply to 2023 tax returns filed in 2024. After 2024, consumers will be able to transfer credits to dealers to reduce the price of their vehicle at the time of purchase.
Will credits boost EV sales?
Yes, but it will probably take years, says Mike Fiske, associate director of S&P Global Mobility. Credit could trigger a surge in sales early next year as the Treasury Department is slow to issue stricter requirements. But most car makers are now selling every EV they make and are unable to produce more due to lack of components such as computer chips.
Automakers can also struggle to prove the source of battery minerals and components, a requirement for buyers to receive full credit. The automaker is scrambling to move more of its EV supply chain to the US.
How do USED-EV credits work?
Consumers can receive a tax credit of up to $4,000 or 30% of the vehicle price, whichever is lower, by purchasing an EV that is two years old or older. But a used EV should cost less than $25,000. This is a tall order given the starting prices of most EVs on the market. A search on Autotrader.com reveals Chevy Bolts, Nissan Leafs, and other relatively economical pre-owned EVs listed for $26,000 and up, with models dating back to 2019.
Second-hand EVs, on the other hand, do not have to be made in North America or comply with battery sourcing requirements. So, for example, his 2022 Kia EV6 isn’t eligible for new car credit because it’s made in Korea, but if the price drops below $25,000, he can qualify for used car credit.
“The real impact of these tax credits having a significant impact will come in the period 2026-2032, when automakers are ready and sales volumes are up,” reports magazine.
Why do governments provide credit?
The credits are part of nearly $370 billion in spending on clean energy, America’s largest investment to combat climate change, and were signed by President Joe Biden in August. EVs now account for about 5% of new car sales in the US. Biden has set a goal for him to reach 50% by 2030.
Sales of EVs are on the rise, especially as California and other states move to phase out gasoline vehicles.Rise of low-cost competitors TeslaThe reach of EVs is expected to extend to middle-class households, such as the Chevy Equinox, which is expected to have a base price of around $30,000. S&P Global Mobility expects EVs to reach 8% share of vehicle sales next year, 15% by 2025 and 37% by 2030.
Can the requirements be relaxed to qualify more EVs?
It’s not clear yet. Some US allies are upset by North American manufacturing requirements that disqualify EVs made in Europe or South Korea.
The requirement would exclude Hyundai and Kia from the credit, at least in the short term. They plan to build new EV and battery factories in Georgia, but they won’t be operational until 2025.
of Ministry of Finance It said it would release information on the “expected direction” of battery procurement and mineral requirements by the end of the year. More EVs will be covered by relaxed rules to address concerns of US allies. But it also risks increasing America’s reliance on foreign supply chains.
Are there charging station credits?
Credits may be available for installing an EV charger in your home. The new law will restore expired federal tax credits in 2021. We offer 30% of the cost of hardware and installation (up to $1,000). There is an added requirement that the charger must be in a low-income area or non-urban area. Businesses installing new EV chargers in these areas are eligible for a tax credit of up to $100,000 per charger, up to 30%.
Home EV charger prices range from $200 to $1,000. Installation can add hundreds of dollars more.
Buy now or wait?
It’s a completely personal decision.
If you’re tired of volatile gas prices and considering an EV, you might want to move on. If you buy a qualifying EV in January or February, you’ll get the full $7,500 tax relief before tougher requirements take effect in March. Additional state credits may also be available.
But if you’re still at a loss, there’s no urgency. With relatively few EVs available, consumers in a hurry to buy may face higher dealer prices. In a few years, as the technology improves, more EVs will be eligible for full credit.
Where can I get more information?
of Ministry of Finance On Thursday, we released a document with some frequently asked questions for individual and business customers about the clean car tax credit to help you understand how to access the various tax benefits.
The Department has also released a white paper outlining the expected direction ahead of the rollout of the proposed rule.
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