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Getting a $7,500 tax break for the purchase of a new electric vehicle will likely get harder in a few months — meaning prospective buyers who want the financial incentive may wish to speed up their timeline.
The Inflation Reduction Act, a historic climate law President Biden signed in August, tweaked rules for an existing tax credit associated with the purchase of “clean” vehicles.
The law, which extended the tax break through 2031, changed some requirements to get the full $7,500 value of the “clean vehicle credit.”
Some tax and auto experts think the tweaks — largely intended to bring more manufacturing and supply chains within U.S. borders and those of allies — will temporarily make it more difficult to qualify for all or part of the credit.
Some rules are on hold until the IRS issues guidance
Some of the tax credit rules took effect on Jan. 1. (More on those, below.) But others pertaining to battery minerals and components — arguably the more challenging to meet — don’t take effect until the IRS issues guidance. The agency expects to do that in March 2023.
At that time, many clean vehicles that currently qualify for the tax break may not anymore — at least, until manufacturers are able to satisfy the new rules.
Consumers who are in the market for a new electric car, truck or SUV likely have a limited time within which they can more easily claim the tax break, experts said.
“There’s almost like a three-month grace period,” Lesley Jantarasami, managing director of the energy program at the Bipartisan Policy Center, said.
Manufacturers have identified 27 all-electric and 12 plug-in hybrid car and truck models that qualify for the tax break based on existing rules, according to IRS data as of Jan. 17. (Buyers must also meet criteria like income requirements.)
Tesla cut prices on some car models this month, helping them qualify for a tax break. There will likely be additions to the vehicle list in coming days and weeks, the IRS said.
After IRS guidance comes through, Jantarasami said, “I don’t think there’s any doubt the list of eligible car models will shrink in the short term.”
If that happens, though, consumers can instead get a separate tax break for buying a used electric car instead of a new one, or perhaps by leasing a car, experts said.
How the $7,500 clean vehicle tax credit works
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The clean vehicle credit is a…
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