Electric vehicles (EVs) are gaining popularity for their eco-friendliness and cost-saving benefits. In a significant move to encourage EV adoption, a new tax credit is set to take effect in 2024, allowing buyers to use the credit as a down payment when purchasing a new electric car. As a part of the Biden administration’s 2022 Inflation Reduction Act (IRA), this exciting development is expected to make EVs more accessible to a broader range of consumers.
The 2024 Federal EV Tax Credit
Starting in 2024, the federal government is introducing a new tax credit designed to make electric vehicles more affordable for consumers. The specific details of the tax credit may vary depending on factors such as the vehicle’s battery capacity and manufacturer.
Kelley Blue Book reported that currently, buyers have to wait until they file their 2023 tax returns to claim the credit. But starting January 1, 2024, buyers can claim up to $7,500 upon purchase of the vehicle, without having to wait for tax time. The credit is broken into two parts. Half the credit becomes available if both the car and the battery are mostly assembled in North America. Meanwhile, the other half becomes available if minerals used in the battery originate in the U.S. or certain partner countries. Under this change, buyers can use the tax credit as a down payment when purchasing a new electric car, by transferring the value of the tax credit to the dealership upon purchase of the car. This presents an opportunity for buyers to significantly reduce the upfront cost of an EV.
Making EVs More Accessible
One of the primary goals of the 2024 federal EV tax credit is to make electric vehicles more accessible to a broader range of consumers. EVs have numerous benefits, including lower operating costs, reduced emissions, and potential savings on fuel. However, the initial purchase price has been a barrier for some prospective buyers. By allowing the tax credit to be used as a down payment, the government aims to address this challenge and encourage more people to transition to electric vehicles. To add, as EV charging infrastructure becomes more accessible, this will also fuel the EV vehicle trend.
Impact on the EV Market
The introduction of the 2024 federal EV tax credit is expected to have a significant impact on the EV market. It is likely to boost consumer interest in electric vehicles, leading to increased sales. The International Energy Agency indicated that 2.3 million electric vehicles were sold in the first quarter of 2023 alone, which is 25% more than the same period in 2022. This increased demand, coupled with the EV tax credit, could incentivize automakers to produce more EV models and invest in advanced battery technology, ultimately driving innovation and competition in the electric vehicle sector.
Moreover, the tax credit could play a role in reducing greenhouse gas emissions by encouraging more drivers to switch from traditional gasoline-powered vehicles to electric alternatives faster. This aligns with broader efforts to combat climate change and promote sustainable transportation options.
How To Take Advantage of the New EV Tax Credit
To take advantage of the 2024 federal EV tax credit, prospective buyers should follow these steps:
- Research eligible vehicles: Start by researching electric vehicles that qualify for the tax credit. Different models may offer varying credit amounts, so it’s essential to choose a car that aligns with your preferences and budget. You can use this tool on FuelEconomy.gov to discover eligible vehicles.
- Consult with a tax professional: Tax laws can be complex, so it’s advisable to consult with a tax professional or accountant who can provide guidance on how to apply the tax credit to your specific income situation. You’ll also want to take into consideration the full cost of switching to an EV.
- Confirm eligibility: Ensure that you meet the eligibility criteria for the tax credit, which may include income limitations and other requirements. These criteria can vary, so it’s crucial to review the latest information provided by the IRS.
- Plan your purchase: Once you’ve selected an eligible electric vehicle, plan your purchase accordingly. You can use the tax credit as a down payment, reducing the upfront cost of the vehicle.
- Complete the necessary paperwork: When filing your taxes for the year in which you purchased the EV, make sure to complete the required paperwork to claim the tax credit. This may involve filling out specific forms and providing documentation to support your claim. It is as yet unclear how the tax credit as down payment will precisely work in terms of on-site paperwork and later tax filing.
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