Electric Vehicle Tax Credits: What You Need to Know

EV Universe

Welcome to our refreshed 2023 guide on electric vehicle tax credits!

*** Updated on March 12, 2023 ***

If you own an electric car or are looking for one, you might know that certain EV purchases come with a dollar amount that the federal government lets you deduct from your taxes. The amount of tax credit varies based on a number of factors. So understanding which electric vehicles are eligible can be a challenge. The EV tax credit landscape also experienced additional changes as a result of new legislation recently released in the Inflation Reduction Act of 2022.

In case you didn’t read all 755 pages of the Inflation Reduction Act, not to worry. We did it for you. We also put together an updated list of what you need to know about its impact on the EV market and vehicle pricing. Essentially, the Act extends the $7,500 EV tax credit for 10 years, until December 2032. This is great news for the EV community. Additionally, there are several new exceptions to what qualifies, which gets confusing. Read on for our clear description of what no longer qualifies and what still qualifies for electric vehicle tax credits.

Spoiler alert – if you had always wanted a Tesla but couldn’t afford it due to it not qualifying for the tax credit, you may be very happy.

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Electric vehicles that no longer qualify for the tax credit

Several vehicles became instantly ineligible for the federal electric car tax credit the day the Act was signed. Any vehicle where “final assembly occurred outside of North America” is now excluded from the tax credit as of August 16, 2022. Some very popular EVs like the Hyundai Ioniq 5, Kia EV6, and Audi Q4 e-tron are among the models that are no longer eligible for the tax credit, based on their foreign manufacturing locations.

Similarly, the Act requires battery materials and other key materials used to build EVs to be primarily sourced in North America. This means that, while a vehicle’s final build location might be in the U.S., it could technically be excluded from incentives based on the percentage of foreign parts used to make it.

Vehicle price also now matters. Vans, pickup trucks, and SUVs with a manufacture’s suggested retail price (MSRP) of more than $80,000 won’t qualify for electric vehicle tax credits in 2023.

What qualifies for electric vehicle tax credits

This is where most of the confusion comes into play. What still qualifies for electric vehicle tax credits? For example, can you buy a new Tesla and still get the credit? We summarized the main sections of the law here to help you understand it.

Purchase date

If you entered into written binding purchase for a qualifying EV under the previous tax credit rules before August, 16, 2022, you can still claim the tax credit under the old rules. This applies even if you have not taken delivery of the vehicle yet. If you are unsure about the rules before August 16, 2022 you can find them here. If you purchased, or are planning to purchase, your electric car in calendar year 2023, you must refer to the 2023 rules.

Sold caps

Tesla, Toyota and GM vehicles will be eligible again in 2023. These manufactures had EVs that were ineligible for the tax credit under the old rules because they hit their 200,000 vehicles sold caps. The Act eliminates this cap in 2023. However, they must still meet the North America assembly criteria along with the new MSRP criteria.

Qualified models

Twenty-one vehicles still qualify in 2023 for the tax credit. Be cautious as some models are made in multiple locations, and you should confirm that the vehicle you are purchasing was assembled in North America.

These are the fully electric vehicles that still qualify in 2023 for the tax credit:

• 2023 Audi Q5 TSFI e quattro (PHEV)
• 2023 BMW 330e (PHEV)
• 2023 BMW X5 xDrive45e (PHEV)
• 2023 Cadillac Lyriq
• 2023 Chevrolet Bolt
• 2023 Chevrolet Bolt EUV
• 2023 Chrysler Pacifica (PHEV)
• 2023 Ford Escape (PHEV)
• 2023 Ford E-Transit
• 2023 Ford F-150 Lightning
• 2023 Ford Mustang Mach-E
• 2023 Lincoln Aviator (PHEV)
• 2023 Lincoln Corsair (PHEV)
• 2023 Jeep Grand Cherokee 4xe
• 2023 Jeep Wrangler 4xe
• 2023 Nissan Leaf
• 2023 Rivian R1S
• 2023 Rivian R1T
• 2023 Volkswagen ID.4
• 2023 Volvo S60 T8 Recharge

You may notice some conspicuous absences from the list or question how certain vehicles from foreign brands made the cut. Many American EVs meet the production rules but not the pricing rules. One such example is the Lucid Air. Other foreign-brand EVs like the Volvo S60 T8 Recharge may be Swedish in brand association, but that particular model is assembled in Charleston, South Carolina. Popular German EVs like the BMW i4 and Mercedez Benz EQE are noticeably absent for the time being. Many of them are disqualified based on foreign assembly, price, or both. New, fully electric brand Polestar’s “2” electric sport sedan meets the price requirements, but it is manufactured in Luqiao, China.

Income threshold

There is now an income threshold for electric vehicle tax credits.  They will only be available to single-filers who earn less than $150,000 annually, heads of households at $225,000 and couples at $300,000. If you are in an income level above that, you no longer qualify regardless of vehicle eligibility.

Used EVs

Used EVs now qualify for a tax credit of up to $4,000 that takes effect in 2024. This credit applies only for vehicles that are sold through a licensed dealer for $25,000 or less and have been in service for at least two years. It is only valid once per vehicle. The used tax credit is $4,000 or 30%, whichever is lower. There are also income limits for used electric vehicle tax credits just like for new cars. The limits are single-filers with incomes restricted to $75,000, head-of-households to $112,500 and couples to $150,000.

Discount timing

In 2023, you can take the electric vehicle tax credits as a discount at the time of purchase. This means you won’t have to wait until tax season to get the tax credit. The dealer can apply it to the purchase price at the time of sale. Also, the tax credit applies to any “clean vehicle.” So, as an example, a hydrogen fuel cell car or a plug-in hybrid vehicle with four to seven kilowatt hours of battery capacity, could both qualify.

Charger credit

The Act restarts a tax credit for electric vehicle chargers that previously expired on December 31, 2021. For home EV charging station installations, the tax credit is 30% of the costs of hardware and installation. The tax credit will also apply for businesses in 2023 to install chargers at their locations.

Making sense of electric vehicle tax credits

As you can see, the topic of electric vehicle and EV charger tax credits is quite complicated! We hope the summary above gives you a better sense of how it all works. Be sure to check back with EV Universe for updates as the law evolves around EVs and tax credits.

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EV Universe Inc and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.