New Tax Credit For Electric Vehicles: If purchasing a new electric car with a tax credit of up to $7,500 is part of your 2023 plans, you’ll need to pay close attention to several intricate and ever-changing regulations. If you must move quickly, you might consider renting rather than buying.
The IRS published a growing list of automobiles earlier this week that could be eligible for the tax credit effective January 1. Those who decide to lease rather than buy may be able to receive a credit on non-listed vehicles.
However, new regulations in March may lower the credit amount purchasers of certain cars may be entitled to. As further information becomes available, Consumer Reports will update this article.
The updated tax credits of up to $7,500 on some new EVs (see the list of 2022 and 2023 models that qualify) and a new tax credit of up to $4,000 on used EVs are both provisions of the Inflation Reduction Act of 2022, which aims to solve issues with taxes, healthcare, and climate change.
When President Joe Biden signed the legislation in August, some new regulations—like the requirement that new EVs be manufactured in North America to qualify for a tax credit—began to apply. Others will take effect on January 1, 2023. However, leasing might provide a workaround.
According to a Treasury Department representative who spoke to CR, most conventional leases would be eligible for a $7,500 commercial credit without fulfilling the several standards needed to qualify for the consumer new vehicle credit.
Among them are prerequisites that purchasers adhere to income constraints, that the car is under a specified price range, and that it be produced in North America. When a lease is involved, the dealer, not the individual leasing the car, would be the one who receives the commercial credit, and it would be up to the dealer to pass the savings along to the customer.
Drivers who purchase a car built outside North America, such as the well-liked Hyundai Ioniq 5, may be eligible for a tax credit if the dealer passes the savings.
If the dealer passed those savings along to customers, high-income buyers and those who lease expensive EVs like the Lucid Air or Model S or X would also be eligible for the $7,500 credit.
According to Chris Harto, senior policy analyst for transportation and energy at CR, if the car you’re considering purchasing is eligible for a tax credit right now, there’s no need to wait since it might not be. It could be wise to discuss leasing options with your dealer if it isn’t eligible.
Proposed regulations on essential minerals and battery components, which would determine the amount of a tax credit a car can receive, are still up for debate.
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According to the Treasury Department, initial ideas regarding these demands would be released in March. New vehicles won’t need to meet those conditions to be eligible for the full $7,500 tax credit until the government does that.
EV advocates and automakers have expressed concern to Consumer Reports that the lack of clarity surrounding leasing, battery, and critical mineral requirements may make it difficult for consumers to find a vehicle that qualifies for the credits or comprehend how much they will be eligible to claim. This is true even though the IRS’s list of suitable cars provides some clarity.
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Which Car Purchases Might Qualify for the New EV Tax Credit?
The consumer tax benefit will only be available to EVs and PHEVs with their final assembly location in North America. There are also limits on how much cars can cost.
The ceiling for SUVs, pickup trucks, and vans are $80,000 per vehicle. The credit cap for sedans, hatchbacks, wagons and other cars is $55,000.
These restrictions are based on a vehicle’s manufacturer-suggested retail price (MSRP), not its sale price. Therefore, a premium car that was significantly discounted would not be permitted.
Because advertising words don’t always match cleanly with the categories the Treasury Department uses—which are the exact definitions the Department of Transportation uses for fuel-economy regulations—it may be unclear to some customers whether a vehicle qualifies as an SUV or a wagon.
A car must weigh a particular amount or have specified off-roading abilities to qualify as an SUV. For instance, the Tesla Model Y appears to be categorized as an SUV with space for seven passengers and a wagon if it has a capacity for five passengers. Strangely, the Lincoln Corsair PHEV is classified as a wagon, but the Ford Escape PHEV is categorized as an SUV.
According to the IRS, the makers of the following EVs and PHEVs have said that, depending on battery size, they are currently eligible for a tax credit ranging from $3,751 to $7,500, provided other conditions, such as buyer income and MSRP, are satisfied.
- Audi Q5 TFSI e Quattro PHEV SUV (MSRP $80,000 or below)
- BMW 330e sedan (MSRP $55,000 or below)
- BMW X5 xDrive45e SUV (MSRP $80,000 or below)
- Cadillac Lyriq (classified as a car by the IRS, so its MSRP must be $55,000 or below. The Lyriq is on the IRS’ list even though it has a starting MSRP of $62,990 and, therefore, would not qualify unless Cadillac lowers its MSRP.)
- Chevrolet Bolt hatchback (MSRP $55,000 or below)
- Chevrolet Bolt EV hatchback (MSRP $55,000 or below
- Chrysler Pacifica PHEV minivan (MSRP $80,000 or below)
- Ford Escape PHEV SUV (MSRP $80,000 or below)
- Ford E-Transit van (MSRP $80,000 or below)
- Ford F-150 Lightning pickup truck (MSRP $80,000 or below)
- Ford Mustang Mach-E SUV (classified as a car by the IRS, so its MSRP must be $55,000 or below)
- Jeep Wrangler 4xe PHEV SUV (MSRP $80,000 or below)
- Jeep Grand Cherokee 4xe PHEV SUV (MSRP $80,000 or below)
- Lincoln Aviator Grand Touring PHEV SUV (MSRP $80,000 or below)
- Lincoln Corsair Grand Touring PHEV SUV (classified as a car by the IRS, so its MSRP must be $55,000 or below)
- Nissan Leaf S, S Plus, SL Plus, SV, and SV Plus hatchbacks (MSRP $55,000 or below)
- Rivian R1S SUV (MSRP $80,000 or below)
- Rivian R1T pickup truck (MSRP $80,000 or below)
- Tesla Model 3 Rear-Wheel Drive and Long Range sedans (MSRP $55,000 or below)
- Tesla Model Y All-Wheel Drive, Long Range, and Performance SUVs (MSRP $80,000 or below for seven-passenger versions, or MSRP $55,000 or below for five-passenger versions)
- Volkswagen ID.4, Pro, Pro S, S, AWD Pro, and AWD Pro S SUVs (only models made in Tennessee with an MSRP of $55,000 or below for front-wheel-drive versions or MSRP of $80,000 or below for all-wheel-drive versions)
- Volvo S60 PHEV, Extended Range, and T8 Recharge sedans (MSRP $55,000 or below)
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