As of January 1, the tax credits for buying electric vehicles have undergone significant changes as a result of President Biden’s comprehensive climate legislation, which was signed into law in the previous year. These credits have existed for a while, but the recent overhaul represents a major shift.
If you are thinking about purchasing an electric vehicle, it’s important to be aware of the various factors that may affect your decision.
This guide will provide you with important information about the federal tax credit for electric vehicles, although it’s worth noting that state and local governments may also offer additional incentives.
Not every electric vehicle qualifies for the credit
When considering the tax credit, it’s important to check which car models are eligible. For example, some Tesla, Chevrolet, and Toyota models may qualify for a $7,500 tax credit, while others like the Lucid Air and the foreign-built Hyundai Ioniq 5 and Kia EV6 may not be eligible. Both fully electric and plug-in hybrid vehicles may be eligible for the credit, but there are a number of restrictions that must be met in order to qualify.
The tax credit is only available for vehicles that cost less than $55,000, or less than $80,000 for trucks and SUVs. However, electric vehicles are pricey and it may be difficult to find an electric vehicle that meets the price requirements for the tax credit.
In fact, some vehicles that are listed on the IRS website as potentially eligible for a credit actually don’t qualify right now, because their price is too high.
Confusing difference between a car and SUV
It may not be immediately clear whether a vehicle is subject to the $55,000 cap or the $80,000 cap for the tax credit.
There is confusion and frustration among consumers regarding the classification of vehicles for the purpose of the tax credit. The IRS states that the categories are based on criteria for fuel economy for gas-powered vehicles, but the classifications do not always align with consumer expectations. For example, the IRS considers the Volkswagen ID.4 a car unless it has all-wheel drive, in which case it is classified as an SUV. On the other hand, vehicles that consumers might consider SUVs, such as the Tesla Model Y and the plug-in Lincoln Corsair, are classified as cars.
EVs have to be made in the U.S.
For example, the Kia EV6 and Hyundai Ioniq 5 are currently not eligible for a purchase credit, although it may be possible to lease these models. On the other hand, the eligibility of the Volkswagen ID.4 for the credit depends on factors such as where the vehicle was manufactured. ID.4s made in Germany do not qualify for the credit, while those built in Chattanooga, Tennessee do. It is important to carefully consider these factors when determining the eligibility of a specific vehicle for the tax credit.
There is a credit for buying a used EV
If you purchase a used electric vehicle from a dealership (model year 2021 or earlier), you may be eligible for a tax credit of up to $4,000. There is a price cap for this credit, however, as the vehicle must cost less than $25,000. It is worth noting that this credit is only available for used electric vehicles purchased from a dealership, and not from an individual seller.
Potentially eligible vehicles
– Audi Q5 TFSI e Quattro (PHEV)
– BMW 330e
– BMW X5 xDrive45e
– Ford Escape Plug-In Hybrid
– Ford E-Transit
– Ford F-150 Lightning
– Ford Mustang Mach-E
– Lincoln Aviator Grand Touring
– Lincoln Corsair Grand Touring
– Chevrolet Bolt
– Chevrolet Bolt EUV
– Cadillac Lyriq
– Nissan Leaf S, S Plus, SL Plus, SV and SV Plus
– Rivian R1S
– Rivian R1T
– Chrysler Pacifica PHEV
– Jeep Wrangler 4xe
– Jeep Grand Cherokee 4xe
– Tesla Model 3 Rear Wheel Drive and Long Range
– Tesla Model Y All-Wheel Drive, Long Range and Performance
– Volkswagen ID.4, and the ID.4 Pro, Pro S, S, AWD Pro and AWD Pro S
– Volvo S60 (PHEV), Extended Range and T8 Recharge (Extended Range)
See the updated list IRS here.