Are you in the market to buy an electric or plug-in hybrid vehicle? One of the most tempting reasons to go EV or PZEV is because you can qualify for a federal tax credit (and some state benefits here in California). However, there is some good news and some bad news for electric vehicle buyers thanks to the newly enacted Inflation Reduction Act.
The Inflation Reduction Act includes a completely revamped tax credit for eligible electric vehicles, starting in 2023 and continuing through 2032. It is now known as the “clean vehicle credit.”
On the positive side, the clean vehicle credit allows for a maximum tax credit claim of $7,500. This is a great incentive to purchase an electric or plug-in vehicle. However, there are some new restrictions that you need to know. To qualify for the credit beginning in 2023, you must meet these requirements:
Basically, those with higher incomes and/or buying more expensive electric vehicles will likely no longer be eligible for the clean vehicle credit.
In addition, the vehicle itself must meet specific domestic assembly and battery sourcing requirements. The new law reduces or eliminates the tax credit if the vehicle fails the domestic battery sourcing standards. As of right now, no electric vehicles actually qualify for the full $7,500 credit because many electric car batteries are sourced overseas. Manufacturers are working hard to change this, but it may take a few years before there are a wide range of electric vehicles available that qualify for the full clean vehicle credit under these new restrictions.
Where the new tax credit could do some good is with manufacturing limits. The clean vehicle credit eliminates the current annual cap of 200,000 electric vehicles per manufacturer. Popular electric vehicles made by GM, Toyota, Tesla and more can qualify for the tax credit as long as they meet the price caps and domestic sourcing requirements.
Those buying electric vehicles for business purposes may also qualify for the new commercial clean vehicle credit. Consult with your tax advisor to determine the best tax plan for your work vehicle purchases.
Some new tax credits also apply to used EV purchases. Starting in 2024, you can qualify for a tax credit of up to $4,000 when buying a used electric vehicle from a dealership (not from an individual seller). Income caps will also apply to this credit, as well.
Also starting in 2024, you will be able to transfer your tax credit to the dealer in return for a cash rebate or price reduction. You will be able to benefit from the credit immediately rather than having to wait until your tax return is filed.
If you are in the market to buy an electric vehicle or plug-in hybrid and you will not qualify for the full tax credit in 2023, you may want to buy an EV before the end of 2022. This will allow you to take advantage of the current tax credits and rebates with fewer restrictions.
To learn more about the new clean vehicle credit and how it affects you as an electric vehicle buyer this year, as well as next year and beyond, contact Illumination Wealth today for an introductory financial planning consultation.