Tesla cars parked in a parking lot in Chicago on March 28, 2022. The $7,500 tax credit for buyers of new electric cars is changing again after the United States introduced new guidelines that will affect the list of eligible car models.Scotta Olsona/Getty Images hide the inscription
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Tesla cars parked in a parking lot in Chicago on March 28, 2022. The $7,500 tax credit for buyers of new electric cars is changing again after the United States introduced new guidelines that will affect the list of eligible car models.
Scotta Olsona/Getty Images
Federal tax credits for electric vehicles, which have been confusing both automakers and car buyers for months, just underwent another big change.
It's all because of battery supply requirements that are starting to appear.
The new rules thathas been announcedlast month to require a certain percentage of minerals and battery components to come from North America or a US trading partner. They are designed to promote manufacturing in the US and were part of a massive climate bill that changed the tax credit for electric cars.
The IRS on Monday released an updated list of cars that will qualify under the new battery guidelinesFuelEconomy.gov. It came into effect on Tuesday. And - in keeping with these ever-changing rules - the list was changed again on Wednesday, with some vehicles added back.
In general, General Motors and other US automakers will benefit the most from the renewed rules.
A few of the most popular models — like the Tesla Model Y and the Chevy Bolt — still command a whopping $7,500.
But instead, half a dozen models now get a $3,750 credit, with the Nissan Leaf and several plug-in hybrids losing the credit entirely.
Here's what you need to know.
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Fewer vehicles qualify for $7,500
The $7,500 tax credit is actually two separate credits, each worth $3,750. Prior to April 18, every eligible vehicle received both credits, but now vehicles cannot qualify for either or both.
The IRS says the following vehicles are still eligible for $7,500 in tax credits:
- Cadillac Lyriq
- Chevy Bolt
- Chevy Bolt EUV
- Chevy Silverado EV
- Chrysler Pacifica PHEV
- Ford F-150 Lightning
- Hybryda plug-in Lincoln Aviator Grand Touring
- Tesla Model Y (AWD, Long Range AWD and Performance)
- Tesla Model 3 (performance)
- Volkswagen ID.4 (Standard, S, Pro, Pro S, Pro S Plus and AWD Pro, AWD Pro S and AWD Pro S Plus)
The upcoming Chevy Blazer and Chevy Equinox EV will also be eligible for both credits.
Volkswagen did not appear to qualify for the loan when the IRS released the preliminary list Monday, but it was added to the IRS website Wednesday.
These vehicles now qualify for a one-time tax credit of $3,750:
- Ford E-Transit
- Hybryda plug-in Forda Escape
- Jeep Wrangler 4xe
- Jeep Grand Cherokee 4xe
- Hybryda plug-in Lincoln Corsair Grand Touring
- Mustang Mach-E
- Tesla Model 3 (standard RWD-serie)
A man looks at a Chevy Bolt EUV at the North American International Auto Show in Detroit on September 14, 2022. The IRS has announced that the Chevy Bolt and Bolt EUV will qualify for full tax credits.Geoff Robins/AFP via Getty Images hide the inscription
Geoff Robins/AFP via Getty Images
A man looks at a Chevy Bolt EUV at the North American International Auto Show in Detroit on September 14, 2022. The IRS has announced that the Chevy Bolt and Bolt EUV will qualify for full tax credits.
Geoff Robins/AFP via Getty Images
In addition, Rivian, which makes the electric R1T truck and R1S SUV, says it has submitted updated documentation indicating it is eligible for a one-time tax credit of $3,750 and expects the IRS website to reflect its eligibility "pending future updates).
And these vehicles that were recently eligible will no longer receive the tax credit after April 18:
- Audi Q5 TFSI and Quattro
- BMW 330e
- BMW X5 xDrive45e
- Genesis electrified GV70
- Nissan Leaf S, S Plus, SL Plus, SV and SV Plus (Nissan says "there is hope that the LEAF will qualify for at least a partial credit in the future").
- Volvo S60 (PHEV), extended range and T8 charging (extended range)
So if you're in the market for a Model Y or Ford Lightning, nothing changes. You can still get the full $7,500 credit.
But if you had your eye on a Mustang Mach-E or were waiting for a Tesla Model 3 RWD, taking delivery of that vehicle on Monday instead of Tuesday could mean an extra $3,750 in tax savings. (Note thissays the tax officethe vehicle must bedelivered to the taxpayer, not only ordered, no later than the 17th)
So wait, why is the tax credit changing again?
The last yearsclimate legislation, backed by the Biden administration, not only overhauled the tax credit for electric cars; it also added a number of restrictions aimed at strengthening US supply chains.
In short, the idea was that car companies wanting to take advantage of the tax credit would have to comply with complicated rules that would increase production in the United States.
These rules covered not only the production of the car, but also the procurement of materials that go into the vehicles' batteries.
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One of the $3,750 credits focuses on the raw materials found in the batteries: a percentage of critical minerals such as lithium, graphite and cobalt must be mined or processed in the United States or with a trading partner.
The remaining $3,750 is for battery manufacturing: a certain percentage of battery components, such as anodes, cathodes, and electrolytes, must be manufactured or assembled in North America.
However, setting up detailed guidelines for each was so complicated that the Treasury effectively delayed the entry into force of this aspect of the climate law while they drafted it.
The IRS finally came up with the rules late last month, hence the change in which cars will qualify for the tax credit.
Not surprisingly, foreign automakers lost the most in this push for domestic production. Hyundai and Kia previously lost access to the tax credit because they do not yet manufacture their electric cars in North America. Now Nissan can't take advantage of the tax credit either because their batteries don't contain enough household or partner materials.
Vehicles from five US automakers are still eligible: Tesla (the dominant maker of electric cars), Ford, GM, Stellantis and Rivian. Volkswagen is the only foreign car manufacturer still eligible for the loan.
People look at the Cadillac Lyriq at the North American International Auto Show in Detroit on September 14, 2022. The electric car will still qualify for the full tax credit according to the latest IRS guidance.Geoff Robins/AFP via Getty Images hide the inscription
Geoff Robins/AFP via Getty Images
People look at the Cadillac Lyriq at the North American International Auto Show in Detroit on September 14, 2022. The electric car will still qualify for the full tax credit according to the latest IRS guidance.
Geoff Robins/AFP via Getty Images
But beware: Being "qualified" does not guarantee a tax credit
Other requirements still apply to get the tax deduction. Vehicles must meet battery size and vehicle weight requirements and, more importantly, meet these two requirements:
- Collected in North America
- Has a sticker price under $55,000 for cars and $80,000 for SUVs and trucks
Features can increase the price of the sticker and mounting locations can vary, so for each individual car the buyer must check that mounting requirements and price limits are met.
And if you want an electric car, check your income as well.
It's not just a car that has to qualify: There is an income limit for buyers. It is based on 'modified adjusted gross income' - your income after some deductions (such as pension contributions). This is usually line 11 on Form 1040, but if you have foreign income or income from Guam or Puerto Rico, add it back.
Caps for new vehicles are:
- $300,000 for married couples filing jointly
- $225,000 for heads of household
- $150,000 to all other applicants
You qualify if you have earned less than the limit iorcurrent tax yearLubthe previous year, so a single year of high income does not disqualify you.
Ford F-150 Lightning pickups are on display at the Ford Rouge Electric Vehicle Center in Dearborn, Michigan on April 26, 2022. The Lightning will still qualify for the full $7,500 tax credit, but it also depends on other criteria, including the vehicle's sticker price and the buyer's income .Billa Pugliano/Getty Images hide the inscription
Billa Pugliano/Getty Images
Ford F-150 Lightning pickups are on display at the Ford Rouge Electric Vehicle Center in Dearborn, Michigan on April 26, 2022. The Lightning will still qualify for the full $7,500 tax credit, but it also depends on other criteria, including the vehicle's sticker price and the buyer's income .
Billa Pugliano/Getty Images
Start thinking about next year's taxes
This year, you must also make sure that your tax liability is large enough for you to actually use the credit. It does not tip over. If you qualify for a $7,500 credit but only owe $3,000, your tax bill will be reduced to zero (and you'll be reimbursed for any money taken from your paychecks), but the extra $4,500 goes head-to-head ; you don't get paid.
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Next year, in 2024, that will change. You will be able to get a tax credit as an immediate discount on the price. As long as you qualify, you get the benefit - regardless of the size of your tax bill.
What about used cars?
There islower tax deductions for used electric carsand that doesn't change.
Here's what you need to know. There is an income limit, and as with new cars, it is based on your modified adjusted gross income (line 11 of 1040, unless you have foreign or territory income to adjust). And just like with new vehicles, you're eligible if you're below the income limit in the current or previous year. The income limits for used vehicles are:
- $150,000 for married couples filing jointly
- $112,500 for heads of household
- $75,000 to all other applicants
For used vehicles, the list of requirements is not too long:
- You must buy a used electric car from a dealer and not from a private person.
- Each vehicle can only claim the used credit once, so it could no longer be sold for a used car tax credit
- The vehicle must be at least two years old and meet the requirements for battery weight and size (see the list hereeligible vehicles)
- The purchase price must be $25,000 or less.
The latter may be the biggest challenge. According to Cox Automotive, used electric vehicle prices are falling, but the average auction price last quarter was still $43,400.
However, if you find a qualifying vehicle, you can get a tax credit of 30% of the sales price, up to a maximum of $4,000.
Rivian says its R1S SUV, seen here, will continue to qualify for the EV tax credit after being removed from the original IRS list. However, the price cap requirement will be a barrier for most buyers: only the top-of-the-line premium electric SUV squeaks under the $80,000 price tag.Kevina Dietscha/Getty Images hide the inscription
Kevina Dietscha/Getty Images
Rivian says its R1S SUV, seen here, will continue to qualify for the EV tax credit after being removed from the original IRS list. However, the price cap requirement will be a barrier for most buyers: only the top-of-the-line premium electric SUV squeaks under the $80,000 price tag.
Kevina Dietscha/Getty Images
Do you want to rent? It's easy.
Leased vehicles qualify for a separate tax credit of $7,500 with no limits on price, income or where the car was built.
There is one wrinkle: the tax credit for a leased vehicle goes to the leasing company, not directly to the driver, so make sure your contract actually passes the discount on to you.
Tax credits will change
These rules can still be changed in many ways, including:
- Car manufacturers arehe is already fightingchange their supply chains to meet the requirements so more cars can qualify over time…
- ... but every year the required percentages increase, and soon new restrictions on Chinese components will come into force. So fewer cars can qualify.
- Buyers will be able to get a credit as a dealer rebate instead of a credit on their own taxes starting next year.
- The way the IRS implements these rules is subject to change. The current implementation has been criticized by some members of Congress, who believe the Biden administration has added so much flexibility to automakers that it undermines the purpose of the legislation.
In short: If you want to buy an electric car in the future, you must confirm whether it qualifies when purchasing the vehicle.
The US has just updated the list of electric cars eligible for the $7,500 tax credit? ›
These are the electric vehicles that qualify for a $7,500 tax credit. General Motors, Ford, Stellantis and Tesla are the only four automakers with electric vehicles that qualify for $7,500 in tax credits this year, according to rules released by the U.S. Treasury Department on Monday.Is there a $7,500 tax credit? ›
It extended an existing nonrefundable tax credit — worth up to $7,500 — through 2032 for consumers who purchase new electric vehicles. But the law also tweaked the eligibility requirements for buyers and automakers. For example, as of Aug. 17, final assembly of the car had to take place in North America.How do I qualify for $7500 EV credit? ›
You may qualify for a credit up to $7,500 under Internal Revenue Code Section 30D if you buy a new, qualified plug-in EV or fuel cell electric vehicle (FCV).Is Tesla eligible for new tax credit? ›
Customers who take delivery of a qualified new Tesla vehicle and meet all federal requirements are eligible for a tax credit up to $7,500. Based on new IRS guidance, the $7,500 credit will be reduced to $3,750 for Model 3 Rear-Wheel Drive deliveries starting April 18.What is the maximum credit that a taxpayer can claim per electric vehicle? ›
The maximum credit is $7,500. It is nonrefundable, so you can't get back more on the credit than you owe in taxes. You can't apply any excess credit to future tax years.What vehicles qualify for Inflation Reduction Act? ›
All EVs, Plug in Hybrids (PHEVs) and other "clean vehicles," such as hydrogen fuel cell vehicles, will qualify if they meet the restrictions. To qualify for the new Federal Electric Vehicle Tax Credit, the price of a new car must be $55,000 or less. The purchase price of a new truck, van or SUV must be $80,000 or less.What cars are tax write offs? ›
Any vehicle with a manufacturer's gross vehicle weight rating (GVWR) under 6,000 pounds (3 tons). This includes many passenger cars, crossover SUVs, and small utility trucks.What is the income limit for the $7500 EV tax credit? ›
There are income limits on who can claim the EV tax credit.
If you're single, and your modified adjusted gross income is over $150,000, you won't qualify for the EV tax credit. The EV tax credit income limit for married couples who are filing jointly is $300,000.
A tax credit is a provision that reduces a taxpayer's final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer's tax bill directly.What is the Inflation Reduction Act 2023? ›
The Inflation Reduction Act also includes direct savings for households to make crucial, cost-saving energy efficiency improvements to their home. Tax credits will be available as soon as 2023 for purchases of new and used electric vehicles and energy efficient home improvements such as heat pumps and solar panels.
Why is Tesla not eligible for $7,500 tax credit? ›
In order to qualify for a tax credit of up to $7,500, a new EV or eligible plug-in hybrid vehicle (PHEV) must meet certain rules: A vehicle's MSRP must not exceed certain limits, so pricey EVs, such as the GMC Hummer EV, Lucid Air, and Tesla Model S and Model X, won't qualify.What qualifies for energy tax credit in 2023? ›
Under the Inflation Reduction Act, you can get a tax credit for 30 percent of the cost of installing clean energy systems in your home, including solar panels, wind turbines, battery storage and more.How does EV tax credit work if I don't owe taxes? ›
The EV tax credit is a federal credit for income taxes owed to the IRS; you must owe enough taxes to take advantage of this opportunity. If you owe no income taxes to the IRS, then you can't benefit from it.Can you claim EV tax credit every year? ›
The credit is limited to 30% of the vehicle's purchase price. You can claim the credit once every three years.Can you use the 7500 EV tax credit twice? ›
You can only claim the tax credit once for each qualifying vehicle. That means if you were to buy another battery electric vehicle or plug-in hybrid vehicle you could claim the federal EV tax credit twice if the second car is also an eligible vehicle.Are hybrid cars included in tax credit? ›
Tax Credits and Incentives
Some all-electric and plug-in hybrid vehicles qualify for a $2,500 to $7,500 federal tax credit.
The Inflation Reduction Act of 2022 includes two provisions authorizing $8.8 billion in rebates for Home Efficiency Rebates and Home Electrification and Appliance Rebates.What is the 6000 pound vehicle tax credit? ›
The 6,000-pound vehicle tax deduction is a rule under the federal tax code that allows people to deduct up to $25,000 of a vehicle's purchasing price on their tax return. The vehicle purchased must weigh over 6,000 pounds, according to the gross vehicle weight rating (GVWR), but no more than 14,000 pounds.Can I write off 100% of my car? ›
The deduction amount varies depending on the size of the vehicle. Qualifying passenger vehicles are eligible for a fixed deduction (up to $18,200 per vehicle for 2021), while larger vehicles can qualify for a deduction of up to 100% of the purchase price.What is the 6000 pound vehicle tax write off? ›
Vehicles weighing more than 6,000 pounds but less than 14,000 receive a maximum first-year deduction of up to $27,000 in 2022 ($28,900 in 2023). After that, you follow a regular depreciation schedule.
Is there a 8000 tax credit? ›
For tax year 2021 (the taxes you file in 2022): The amount of qualifying expenses increases from $3,000 to $8,000 for one qualifying person and from $6,000 to $16,000 for two or more qualifying individuals. The percentage of qualifying expenses eligible for the credit increases from 35% to 50%What is the 6000 tax credit? ›
For the 2022 tax year parents and care-givers can claim the tax credit to cover employment-related expenses worth up to $3,000 per dependent, up to a maximum of $6,000. The total amount of the credit cannot exceed 20-35% of your expenses, depending on your income level.What is the new $5,000 tax credit? ›
The IRS says if you welcomed a new family member in 2021, you could be eligible for an extra $5,000 in your refund. This is for people who had a baby, adopted a child, or became a legal guardian. But you must meet these criteria:You didn't receive the advanced Child Tax Credit payments for that child in 2021.