What car buyers need to know about upcoming electric vehicle tax credits


It’s called the Inflation Reduction Act of 2022, but one of its main goals is to tackle carbon emissions, among other things, by getting Americans to buy zero-emission vehicles. After passing both houses of Congress, the bill was signed into law by President Biden on Tuesday.

Not everyone is happy with the end result. The auto industry and environmental advocates have complained about the legislation, with automakers calling the incentive program a “missed opportunity” to limit it to cars built in North America, among other criticisms. Environmentalists say the law could have done more to make clean cars affordable and accessible.

But for consumers considering going electric — especially in California, where purchases of electric and hybrid vehicles are already heavily subsidized — the incentives it contains could tip the balance in favor of buying this. new Model 3 or F-150 Lightning as soon as possible.

One big caveat: Due to restrictions on the types of cars eligible for the tax credit, don’t expect large numbers of Americans to file for the incentives, at least not initially.

Here’s what we know about the expected tax credit and what it means for Californians.

What incentives does the new legislation offer EV buyers?

Starting Jan. 1, low- and middle-income Americans would be eligible for a $7,500 tax credit toward the purchase of a new clean air vehicle — a designation that includes hydrogen fuel cell vehicles. as well as electric batteries – and $4,000 for the purchase of a used vehicle. a. The credits will be limited to single filers with an adjusted gross income of $150,000 or less, married couples filing jointly with income not exceeding $300,000, and individuals filing as head of household, earning $225,000 or less.

From 2024, car buyers can benefit from the tax credit in the form of a reduction at the time of purchase.

Which vehicles will be eligible for the tax credit?

The credit cannot be used for the most expensive vehicles – only clean air cars with a manufacturer’s suggested retail price of up to $55,000 and $80,000 for SUVs and trucks. This disqualifies some of the expensive models such as the Hummer EV and BMW i4.

To qualify for the full credit, a zero-emission vehicle must be assembled in North America and the main battery materials must come from the United States or a country that has a free trade agreement with the United States. If the vehicle meets just one of these criteria, the buyer can qualify for half the credit.

“Unfortunately, the electric vehicle tax credit requirements will make most vehicles immediately ineligible for the incentive,” said John Bozzella, president and CEO of the Alliance for Automotive Innovation, a group that represents dozens of automakers and technology companies.

Proponents of the legislation argue that the credits will create an incentive for electric vehicle makers to make production changes to meet the criteria.

The legislation does not specify which makes and models of vehicles qualify for the tax credit, so it may take some time to clear up the confusion. Meanwhile, Consumer Reports has released a list of electric vehicles that were assembled in North America and are entitled to at least some credit. These vehicles include the Chevy Bolt, Nissan Leaf, Ford F-150 Lightning, and the Tesla Model 3 and Model Y.

Vehicles that do not qualify for the new tax credit because they are too expensive or not assembled in the United States include Hummer EV, Tesla Model S and Model X, BMW i4, Hyundai Ioniq 5 , the Kia EV6 and the Toyota. bZ4X.

Can Californians get both the state refund and the federal tax credit?

Yes, if you can get your hands on a refund. California’s Clean Vehicle Rebate Program – which offers up to $7,000 in rebates for the purchase or lease of a new plug-in hybrid electric vehicle, battery electric vehicle or electric vehicle fuel cell – can be combined with the federal tax credit.

Californians trying to claim reimbursement have often faced long waits, with the fund paying them periodically running out of money. The state set aside $515 million for the reimbursement program last year and about $352 million is still available. Details of eligible vehicles and the amount of rebate you can earn are posted on the program website.

California’s rebate program does not disqualify high-income applicants, but the amount of state rebate varies depending on the type of vehicle you choose and your personal income level. Rebates are generally higher for hydrogen fuel cell and battery electric vehicles and lower for plug-in hybrids.

“The federal tax credit will give a boost to California’s electric vehicle rebate program, which is already outpacing the rest of the country,” said Bill Magavern, policy director at the Coalition for Clean Air.

Should we wait or buy an electric vehicle now?

It depends on the vehicle you are looking to buy. The federal government currently offers a new clean-energy vehicle tax credit of up to $7,500, but it’s limited to 200,000 rebates per automaker. Tesla, General Motors and Toyota have exceeded this cap and are no longer eligible for the credit. The Reducing Inflation Act removes the cap and also introduces a $4,000 credit that can be applied to used vehicles.

The existing federal tax credit does not require the vehicle to be assembled in the United States to qualify for a credit.

If the vehicle you plan to buy does not qualify for the new tax credit because it is not assembled in the United States, “it would be your responsibility to buy it now” and claim the current credit , said Magavern.

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