EV tax credits aren’t new, but they’re becoming more relevant as EVs gain popularity in the US. Thanks to recent legislation by Congress and President Biden, EVs’ price, range, charging time, and access to charging stations are starting to decline. The new law pledges money and support to expanding the EV industry, but it will make tax credits harder to get.
Bloomberg reports that US EV adoption has reached a tipping point. 5% of new cars sold in 2022 were electric. (Opt.) With plug-in hybrids, we may reach 10% this year.
The Inflation Reduction Act of 2022, a slimmed-down version of the Build Back Better Act, has passed the Senate and may be signed by President Biden this week. Some lawmakers call it the most important climate change bill ever.
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- 1 Is there an EV tax credit?
- 2 New EV provisions in IIRJA
- 3 The Inflation Reduction Act maintains $7,500 EV tax credits.
- 4 How to get the $7,500 EV tax credit
- 5 Fuel cell vehicles tax credit?
- 6 Used EVs qualify for the tax credit.
- 7 Do leased EVs qualify for the tax credit?
- 8 The Inflation Reduction Act includes further changes.
- 9 Electric vehicle tax credits?
- 10 EV tax credits in California
- 11 EV tax credits in Colorado
- 12 EV tax credits in Illinois
- 13 NY EV Tax Credits
- 14 State EV tax credits
- 15 Electric future?
Is there an EV tax credit?
EV tax benefits began in 2008 and continue now. IRC Section 30D offers a credit for EVs and PHEVs purchased after Dec. 31, 2009. IRS list of qualifying automobiles and tax benefits. Fill out IRS Form 8936 when filing your tax return to claim the credit.
Depending on battery capacity, credits range from $2,500 to $7,500. More battery power equals more credit.
The credit is nonrefundable, so you can only claim as much as you owe in federal income taxes (which must be the year you purchase and start using the vehicle). If you owe $6,000 in taxes, you can only obtain $6,000 in credit, even if your car qualifies for $7,500. Credit doesn’t rollover. The IRS can reject or diminish any credit.
After that legislation passed… crickets. The original $7,500 credit hadn’t been updated until today.
New EV provisions in IIRJA
President Biden signed the bipartisan $1.2 trillion Infrastructure Investment and Jobs Act in 2021. (IIJA). It doesn’t boost the maximum $7,500 tax credit, but it has key measures for EV buyers. These provisions include $7.5 billion for EV charging infrastructure and more than $7 billion for essential minerals supply chains.
The Act permits private sector to build more EVs and their parts in the US, generate jobs for autoworkers, and enhance domestic supply chains. Several government departments announced programmes and funds to meet the Act’s goals. The Department of Energy’s EVs4ALL programme ($45 million) develops fast-charging batteries to complement the public charging network.
The Inflation Reduction Act maintains $7,500 EV tax credits.
The Inflation Reduction Act of 2022, which President Biden is scheduled to sign soon, includes EV tax benefits. The $7,500 EV tax credit is extended. The Build Back Better Act tried to boost the credit to $12,500, but it never passed. Where the batteries are created determines whether purchasers get the full credit.
This makes it harder than ever to get the entire $7,500.
How to get the $7,500 EV tax credit
To earn the first half ($3,750) of the full tax credit, a percentage of the vehicle’s battery materials must be processed or mined in the US or a free trade agreement country. In 2023, it will be 40%. 2027: 80%.
To qualify for the remaining $3,750 credit, the vehicle’s battery must be built in the US, Canada, or Mexico. By 2029, the needed percentage will be 100%. The credit expires in 2032.
The US does not have free trade agreements with China and other nations that refine minerals and make battery components. Increasing these operations in the US has political and environmental hazards. Some lawmakers, like Senator Joe Manchin, want to promote US mineral extraction to reduce reliance on foreign battery ingredients.
Congress has recommended alternatives for sourcing electric vehicle batteries and parts. IIJA provisions (money) address lithium-ion battery supply chain challenges. Identifies, produces, recycles, and reuses key minerals. It helps firms develop energy production facilities in communities with closed coal mines or power stations.
Fuel cell vehicles tax credit?
The EV tax credit will be renamed “clean vehicle credit.” under the Inflation Reduction Act. FCVs should qualify if assembled in North America. Zero-emission FCVs use atmospheric oxygen and compressed hydrogen.
Hyundai, Toyota, and Honda utilise fuel cells in passenger and commercial vehicles (such forklifts). Lack of hydrogen fuelling stations and other logistical issues may prevent FCVs from becoming mainstream. The 30% or $40,000 credit for commercial fuel cell vehicles is in place until 2032.
Used EVs qualify for the tax credit.
Act includes a credit for used electric automobiles. You may gain $4,000 or 30% of the sale price. The credit decreases based on AGI (AGI). Your tax credit is lowered if your AGI is over $150,000 for a married couple, $112.500 for a head of household, or $75,000 for all others. End date: 2032
Do leased EVs qualify for the tax credit?
If you lease an EV from a dealership, the credit goes to the dealership, however it may provide you a break.
The Inflation Reduction Act includes further changes.
More EVs get tax credits. Under the current system, you can’t get the full EV tax credit if you buy a car from a manufacturer that has sold more than 200,000 EVs. Before the legislation is signed, you won’t get the whole $7,500 if you buy a Tesla or GM vehicle, but after it will.
Higher income limitations for tax credit. At $300,000 (married filing jointly), $225,000 (head of household), and $150,000 (single), EV tax credits phase out (all others).
Limit prices. You can’t get the credit for a sedan over $55,000 or an SUV or pickup truck over $80,000.
Electric trucks. As with fuel cell vehicles, commercial EVs might get a $40,000 credit.
Electric vehicle tax credits?
Yes. Many. Most states give tax credits, rebates, and reduced vehicle taxes or registration fees. The DOE has a state-by-state list (Opens in a new window). Check out this list for new state legislation and regulations.
EV tax credits in California
Electric Vehicle Program in California. This is a Clean Fuel Reward Program reimbursement of up to $750 for a new EV or PHEV. To qualify, the vehicle must be from a participating retailer and have a 5-kWh battery.
The Clean Vehicle Rebate Project in California gives $4,500 refunds for FCEVs, $2,000 for EVs, $1,000 for PHEVs, and $750 for zero-emission motorbikes. First-come, first-served for income-based refunds.
EV tax credits in Colorado
In 2022, Colorado may offer a $2,500 tax credit for buying or converting a light-duty EV ($1,500 for leasing). Light-duty, medium-duty, and heavy-duty electric trucks might receive $3,500–$10,000.
EV tax credits in Illinois
IEPA gives discounts to Illinois residents who buy or lease an EV. Up to $4,000 is rebated through 2026.
NY EV Tax Credits
New York’s EV Rebate Program offers up to $2,000 for the purchase or leasing of a new EV.
State EV tax credits
Connecticut, Massachusetts, and New Jersey also give tax rebates. Before buying a new EV, PHEV, or FCEV, learn the eligibility requirements.
Car and Driver produced a guide to EVs from concept to manufacturing expected in the next five years. Some won’t be made.
How quickly will consumers buy them? Many futurists envision recharge stations as common as Speedways and gas-powered vehicles as extinct as the ancient living forms that fueled them. When this might happen is uncertain.
An all-electric world would be good for the planet and its people. This is the top reason Americans might consider buying an EV, according to a Pew Research Center survey.
Even while most poll respondents favoured using incentives like tax credits to promote EVs and PHEVs, just 42% “would be very or somewhat likely to seriously consider purchasing an electric vehicle the next time they’re looking for a new car or truck.”