Last year, the Inflation Reduction Act, or IRA, was signed into law. The legislation offered clean energy incentives, including tax credits for the purchase of electric vehicles. Initially, the rules set limits on manufacturers’ retail sales price and buyer’s income, restricting who can benefit from the maximum $7,500 credit.
Now, revisions to those guidelines will likely result in a shorter list of qualifying vehicles. The new guidance requires certain minerals and battery components to be used in manufacturing EVs, which could leave some vehicles eligible for only half the available tax credit, or none at all.
These revisions are set to take effect on Tax Day, April 18.
Diluted Tax Benefit
The EV tax incentives provided in the IRA are designed to support US manufacturers and workers. The same is true of these revisions.
Both the critical minerals and the battery component requirements are tied to North American sourcing and processing. Meeting the prescribed standards for either one but not the other provides for a $3,750 credit. Vehicles must pass both tests to qualify for the full $7,500 credit.
Additionally, the legislation proposes that the required percentage of minerals and battery components sourced in North America increase over time.
As the rules evolve, consumer confusion over which vehicles are eligible may increase as well. Although the current list of qualified vehicles provided by the IRS will update on Tax Day, given planned changes to eligibility criteria, this latest draft will likely be written in pencil.
If you’ve been planning to purchase an EV, it may sound like you need to pull the trigger sooner rather than later to take advantage of the best tax advantages. But there’s one update coming that will make getting the tax credit simpler.
In 2024, consumers will be able to have the discount applied directly to the purchase price at the point of sale. The tax credit will instead transfer to the car dealer. So, for those looking to go electric, you’ll soon be able to get select EVs with both a reduced price and a reduced headache come tax time.
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