Courtesy of the Wall Street Journal, the following is a detailed explanation of the new rules for electric vehicle tax credits that became effective this August when President Biden signed the Inflation Reduction Act into law:
What are the credits?
The maximum tax credit in the new law is the same as the old law. EV buyers can get a credit of as much as $7,500 for new electric vehicles through 2032. And starting in January, there is a new tax credit of up to $4,000 or 30% of the sales price, whichever is less, for used EVs, also through 2032.
Purchases between Aug. 16 and year-end 2022
Shoppers who buy and take possession of an EV in this period are limited to vehicles with final assembly in North America. The Energy Department has already put together a list of Model Year 2022 and 2023 vehicles that likely meet the requirement—likely because some models are built in multiple locations.
To check whether a specific vehicle meets the final assembly rule, buyers can enter the make and model year and VIN into the National Highway Traffic Safety Administration’s VIN Decoder, and the decoder spits out vehicle details including the place of manufacture.
Note that manufacturer caps still apply for this year. This means that no credits are available for manufacturers such as Tesla or GM that have already reached 200,000 in EV sales.
Transition rule for purchases before Aug. 16
EV buyers who entered into a binding contract to buy a new EV in 2022 before the Aug. 16 effective date can still claim the credit based on the old rules, even if they take possession of the vehicle later. This means an electric Mini Cooper manufactured in England, bought in the spring and expected to be delivered in September, for example, still qualifies for a tax credit.
Purchases in 2023 and later
The manufacturer caps are lifted as of 2023. But price caps and income limits kick in, and new rules around battery components will limit the number of vehicles that qualify. Watch for another DOE list.
For new EVs, the price caps are $80,000 for pickups, SUVs and vans and $55,000 for other vehicles. Used EVs can’t cost more than $25,000, must be at least two years old, and must be bought at a dealer.
For new EVs after 2022, no credit will be allowed for an individual taxpayer whose modified adjusted gross income is more than $150,000, $225,000 for head-of-household filers and $300,000 for joint filers. For used EVs, no credit will be allowed for an individual taxpayer whose MAGI is over $75,000, $112,500 for head of household filers and $150,000 for joint filers.