So, you’re thinking of buying an electric vehicle. As of 2021, the sticker price for a new EV was about $10,000 more than the industry average, but if Congress approves the new Inflation Reduction Act, that gap could be a whole lot smaller, making EVs fit a bit more into your budget.
Tucked inside the Inflation Reduction Act is a historic climate bill that would allocate $369 billion (yes, you read that right) towards energy and climate action. Among a wealth of goals aimed at reducing American emissions, American consumers will be a big beneficiary of the bill, especially those who are looking to buy an EV.
Despite the lower cost of long-time ownership, compared to gas cars, electric vehicles are still too steep of an initial price for the majority of car consumers. But, the bill could make the up-front price much more affordable, as consumers may apply for a tax credit of up to $7,500 for electric vehicles or plug-in hybrids purchased new in or after 2010.
Additionally, according to CNN Business, buyers may also be eligible for a tax credit of up to $4,000 or 30 percent of the sticker price for pre-owned vehicles, whichever is less.
The tax credit program has been around since 2007, but previous caps made the incentive in dire need of an update.
The tax credit makes the price of electric cars much more appealing. It also aims to make EVs more accessible for those in rural areas by eliminating charging station deserts, with a plan to build a nationwide network.
But before you make your way to the nearest dealership, you may still have some lingering questions, such as how much you qualify for and what the limits of the program are. Let’s get into the fine print.
Which EVs qualify?
As you browse the internet searching for the best EV for the planet and your pockets, you might be wondering: does the EV I want apply to the tax credit program? And if so, for how much?
The bill is primarily aimed to increase North American manufacturing. So, the tax credit specifically applies to people buying an EV or plug-in hybrid built in North America.
How much it qualifies for is dependent on how much of the vehicle is actually built here. For instance, a vehicle’s battery minerals must be mined in the U.S., or in a trade partner country, with the battery largely built in North America.
That part means cars like the popular Mexico-built Ford Mustang Mach-E would qualify. Makes such as popular Volkswagons, Audis, and Nissans also apply, all for up to the full tax credit. However, as reported by E&E News, if a vehicle only meets half of these requirements, they are only eligible for half of the incentive, capped at $3,705.
Right now at least 50 percent of the battery components must be made in North America. However, that won’t be stagnant. This number will rise by 10 percent each year, meaning that next year, 60 percent of the components must be made in North America, and 100 percent by 2029. Regulations around the critical minerals content of EVs will progress in a similar way, requiring them to be 100 percent North American by 2028.
Like full-EVs, hybrids, are susceptible to the same rules. So, while plug-ins such as Bentley’s new Bentayga are eligible for the $7,500 credit, makes such as Ferrari’s are only eligible for up to $3,501.
You can find a full list of approved vehicles and their tax credit amounts here.
Okay, but can I buy a Tesla?
By now, you’re probably wondering: what about Teslas? Previously automakers like Tesla and General Motors were not eligible to tax credits due to thresholds on qualified sales, putting these early EV makers at a disadvantage. Previously this threshold was 200,000 cars sold. US automaker Tesla topped the number a few years ago, making the brand no longer applicable to past tax credits.
This essentially made their cars more expensive than those of their competitors. But with the proposed bill, this cap will be removed and Tesla and GM will again be covered.
But, before you make up your mind, these makes will only be covered at a partial amount, as full credits are limited to automakers who have not yet passed the mark. The change comes just as makers of popular hybrids like Toyota and Nissan were nearing the bittersweet number. However, it's important to note that for some makes, such as Tesla, vehicles purchased on or after a certain date do not qualify for tax credits at all.
Used vs. Luxury
One of the biggest changes to the incentive program is the inclusion of used cars. Previously used vehicles were not eligible for tax credits, earning criticism that the program only benefited the wealthy. But, buyers must keep in mind that used EVs can only cost a maximum of $25,000 to qualify for a tax credit. It also must be sold by a licensed car dealer and must be the first time the car has been re-sold.
There are price caps on new vehicles too. Why? The reason is to ensure the bill is directed to mass-market customers, not wealthy buyers of luxury EVs. Thus, for plug-in trucks, vans, and SUVs, the manufacturer's suggested retail price must be no more than $80,000. For all other types of vehicles, like sedans and sports cars, the price limit will be capped at $55,000.
For the same reason, there is also an income limit, regulating exactly who qualifies. According to CNN Business, buyers “can have taxable income of no more than $300,000 annually for those filing jointly, or $150,000 for those filing as individuals.”
Lastly, one of the most important changes is that EV buyers wouldn't have to wait until they file their taxes to get the tax credit. Instead, the incentive would be treated like a rebate and applied at the time of purchase at the dealer, potentially lowering monthly payments.
Now that you’ve got all the fine print ironed out, you might be ready to make your decision. No rush though; the new incentives expire in 2032.