The Inflation Reduction Act offers us an opportunity to drive cleaner cars and save some green too. But there are a lot of little stipulations that come with the bill and it can be confusing figuring out which cars qualify. Here we’ll break it down — and give you the reasoning behind the rules too.
For the first time, used, new, and commercial EVs all offer tax credits. But they have different requirements to keep in mind.
If you want to buy a used electric vehicle, you can get back up to $4,000 or 30% of the cost back in tax credits, whichever is lower. The car must sell for under $25,000, and your income needs to be $75,000 or less if you file as an individual, under $112,500 as a head of household, or less than $150,000 if you file jointly to qualify. As a bonus starting in 2024, rather than having to wait until tax season to claim your credit, you can immediately take that money off your purchase at a dealership. This additional incentive is a really nice way to reduce the upfront cost that comes with buying an electric car (or just cars in general these days).
When looking at new cars, there are a couple more things to keep in mind. You can still get a tax credit for $7,500 if you make $150,000 individually, $225,000 as head of household, or $300,000 when filing jointly. The car must sell for under $55,000 as a sedan or $80,000 as an SUV. BUT you’ll also need to aim for specific brands and modules, because the rules to qualify for the credit are going to get stricter each year going forward.
Currently we don’t have a lot of restrictions on where we get our materials for EVs, and so we are reliant on buying them cheaply from foreign countries (including China and Russia). In order to strengthen the U.S. supply chain, the administration will require manufacturers to source more battery components and minerals locally. You can find a full list of cars that will qualify for the tax credit in 2023 here.
Last but not least, if you’re looking to electrify a commercial vehicle over 14,000 lbs, you can get a massive $40,000 tax credit to help get you there.There are luckily no restrictions right now about sourced materials, and the hope is to incentivize businesses to seriously consider the change.