As of January 1, many Americans can qualify for a tax credit of up to $7,500 for buying an electric vehicle. The credit is one of the changes enacted under last year’s Inflation Reduction Act. The purpose is to encourage EV sales and thereby reduce greenhouse gas emissions and air pollution.
There has been a tax credit for EVs for more than a decade, but its provisions made cars from any manufacturer ineligible as soon as that manufacturer had sold more than 200,000 cars. Notably, this eliminated the credit for purchasing cars from Tesla and General Motors. Given that electric cars are now selling in the millions, the 200,000-unit cap on the tax credit essentially made it useless as a real force to grow the industry.
The new tax credit has a somewhat complex set of requirements for determining the applicability and amount of the credit. There are price limits on eligible vehicles depending on vehicle type and there are requirements on where vehicles are manufactured, where batteries are manufactured, and where other components are made. The intent is to encourage American manufacturing of the cars and trucks to the greatest extent. There are also income limitations on buyers who want to take advantage of the credit, but those are quite large. The Department of the Treasury has online detailed information about the requirements for the credit and, of course, EV manufacturers can provide the specifics for their own vehicles.
For their part, automakers are adjusting prices, building domestic manufacturing plants and battery factories, and otherwise trying to position themselves for their customers to take advantage of the credit.
The new law also provides a smaller tax credit for the purchase of used electric vehicles.
Photo, posted December 9, 2022, courtesy of Choo Yut Shing via Flickr.