EV Tax Credits: Are Inflation Reduction Act Regulations Actually More Beneficial?

LA, CA, USA4/12/2022White Model 3 Tesla driving on the road.
Brandon Woyshnis / Getty Images

The Inflation Reduction Act that passed last month offers thousands of dollars in tax credits to Americans who buy electric vehicles or make clean energy upgrades to their homes. However, parsing through the different rules and changes is a major challenge, especially for EVs — so much so that the Biden administration launched a website just to help people navigate it all.

As CNBC recently reported, there are numerous moving pieces tied to tax incentives for EVs, many having to do with whether you buy a new or used car, when you buy it, how certain parts are sourced, and where they are manufactured. In many cases the credits won’t roll around until 2023 or 2024.

What’s known is that consumers who buy a new EV can get a tax credit worth up to $7,500, while the credit for used vehicles is worth up to $4,000. Some buyers might also be eligible for incentives from state and local governments (or utilities) because of rules already in place.

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However, not everyone is convinced the new rules will benefit all EV customers. Many tax breaks already in the tax code were extended through 2022, while many of the new requirements to get the biggest tax breaks won’t arrive until 2023 or later.

Mark Luscombe recently wrote, via Accounting Today, that, “This creates a potential last opportunity to take advantage of some of these tax breaks before the new requirements come into play.”

Luscombe, a CPA and attorney, noted that obtaining the tax credit for an EV “could prove difficult,” at least for a while. That’s because the new credit imposes vehicle price limits, purchaser income limits, and vehicle domestic sourcing tests that must be met before you can qualify for the credit.

He added, “It is estimated that most electric vehicles will not qualify under these requirements until manufacturers can come up with alternative sourcing for critical minerals and battery components or alternative minerals.”

Those requirements won’t become effective until the beginning of next year — or even later, if the IRS needs more time to come up with proposed regulations.

If you’re thinking about buying an EV to take advantage of the credits, it’s important to keep in mind that many new vehicles might not be immediately eligible for the tax break in 2023 because carmakers must first meet new manufacturing rules.

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“If you want an EV, go buy an EV, [but] to wait four months for the credit is risky,” Joel Levin, executive director of Plug In America, told CNBC. “There’s a lot of uncertainty what will be available Jan. 1.”

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There is at least one potential upside to waiting until 2023 or later: Consumers who buy EVs from General Motors and Tesla would be eligible for the credit. That’s not the case this year due to current restrictions on the tax credit that will expire next year.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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