In August, the Biden Administration signed one of the most significant and impactful bills in President Biden’s presidency. There is a lot to unearth from this hefty legislation, but perhaps the most interesting portion of the bill is that which pertains to electric vehicles. Set to take effect in January of 2023, let’s dive into this piece of legislation and unpack the significant changes to the tax credit for new electric vehicles, which will phase in over time.
As the ever-evolving automotive industry grows, the introduction of electric vehicles has substantially impacted the market and set milestones in how the industry moves forward. This bill includes a key provision intended to stimulate growth in the electric vehicle market. Infrastructure will likely transition into a more effective system for electric vehicles. California has initiated to ban the sale of gas-powered vehicles by 2035, and other states will likely follow suit in years to come.
The Inflation Reduction Act states, “All electric and plug-in hybrid vehicles that were purchased new in or after 2010 may be eligible for a federal income tax credit of up to $7,500,”. It might seem simple, purchase a new EV and get a $7,500 tax credit, however, this is not the case. It is important to understand buying an electric vehicle will not guarantee this full federal tax credit in every situation. There are four key requirements to qualify for this tax credit.
Income Limitations - Earning more than $150k as an individual or over $300k as a couple, deems a consumer ineligible for the credit.
Price - Any electric vehicles priced over $55k, and any vans, trucks, or SUVs priced over 80k are not eligible for this tax credit. Because electric vehicles are still more costly, this limitation will act as a protective measure toward a more even playing field.
Select Vehicles - To help stimulate the economy, vehicles must be assembled in the US. Any foreign vehicle will be ineligible for credit.
Materials - In particular, minerals used to produce the batteries must be sourced and manufactured in the US or in a country that is a trade partner of the US. Most EV materials are sourced in China, making those vehicles ineligible at this time.
Over time, EVs will begin to carve a much more significant impact in the auto industry. It may take numerous years for more EVs to be qualified for this tax credit, but the Inflation Reduction Act is the first critical step to help EVs become more accessible to the masses. Interested in learning more? Give us a call!