HOW DO FEDERAL ELECTRIC VEHICLE TAX CREDITS REALLY WORK?
Federal Electric Vehicle tax credits in 2023 max out at $7,500 if you’re buying a new car and $4,000 if you’re buying a used car, while the automakers, themselves, take a $7,500 tax credit for EV leases–but, may discount your lease, accordingly.
If you’re buying a new EV or PHEV (plug-in hybrid), the “final assembly” of the vehicle must have occurred in North America in order to unlock any tax credits. If it passes that test, now you’re looking at two $3,750 electric car tax credits that add up to $7,500 if you meet all of the criteria. To get the first $3,750 credit, a certain percentage of the car’s critical battery minerals must have been sourced from the U.S. or from any country that has a free-trade agreement with the U.S. The other $3,750 credit requires that a certain percentage of battery components were manufactured or assembled in the same roster of approved countries. There are also significant eligibility caps on both the manufacturer’s suggested retail price of the vehicle–$55,000 for cars, $80,000 for SUVs, trucks and vans–and the income of the buyer, which is subject to limits between $150,000 and $300,000, depending on tax filing status. If either figure is too high, you won’t qualify for any federal EV tax credits.
If you’re buying a used EV or PHEV, you don’t have to worry about where the car was assembled or where its battery bits came from. The income caps are significantly lower, however, ranging from $75,000 to $150,000, while the car, itself, must be at least two years old and cost no more than $25,000. You also have to buy it from a dealer, not a private party. Check all the boxes and you can get a tax credit of up to $4,000, although there’s a sliding scale for cheaper used EVs.
What about leasing a new EV or PHEV? As of this writing, there’s a legislative loophole that lets the originator of the least (typically the automaker’s finance division) take the full $7,500 tax credit for a leased EV, irrespective of the final assembly, battery sourcing, and vehicle pricing requirements. It’s up to each automaker to decide whether to pass these savings along in the form of more affordable leases, but keep in mind that you might get a hefty discount on a leased EV thanks to this loophole. That’s true even if your income would disqualify you from getting the tax credit on a purchased EV–since you’re not the one getting the tax credit in this case, your income is irrelevant.
***The bulk of this information comes from the U.S. Tax Code, various Automobile Trade Publications, particularly Edmund’s, and the Congressional Act which are all subject to my own interpretation. Always consult with your own tax professional to discuss the unique facts and circumstances of your situation and your ultimate desires and goals, first, before acting.
