Tax credit confusion could create a rush for electric cars in early 2023

An electric car charges in Manhattan, New York on December 7, 2021. As the new year begins, a number of popular electric vehicles, particularly some Tesla and General Motors models, may qualify for up to $7,500 in tax credits. It was not eligible for 2022. (Andrew Kelly, Reuters)

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ATLANTA — As the new year begins, a number of popular electric vehicles, particularly some Tesla and General Motors models, may be eligible for up to $7,500 in tax credits they were not eligible for in 2022. But this compatibility can only last for a few periods. month

The Treasury Department announced this week that the limits on new tax credits that went into effect in August as part of the Inflation Reduction Act will not go into effect all at once. This means that the rules will be temporarily more generous, allowing higher tax breaks for more electric vehicles for the first few months of the new year.

The U.S. Treasury Department, which implements the rules, recently announced that it is suspending some new restrictions on the tax credits, including rules on where a car’s battery pack is assembled and where the minerals used in it come from. at least in March 2023, when they announce proposed rules around that part of the requirements. According to language in the legislation, the release of “proposed guidance” around these rules, which the Treasury said would happen in March, would lead to immediate reductions in tax credits. But some of the new rules go into effect as originally planned in January. This leaves a window of about three months during which some vehicles may qualify for higher tax credits than they would otherwise qualify for.

For example, General Motors has already said that once the full restrictions go into effect — when that happens — its electric cars will only qualify for a $3,750 tax credit. The company said it is expected to be two or three years before GM vehicles qualify for the $7,500 tax credit again. In order to qualify for the potentially higher tax credits by early March, the vehicle must actually be delivered to the customer before then, according to just-released Treasury Department guidance. This can further narrow the time window, especially for popular models where customers already have to wait.

While this may present a buying opportunity in the early months of the year, the downside is that it creates confusion around an already confusing set of rules, even by tax regulatory standards.

“I was hoping for more clarity, not less,” said Chris Harto, senior policy analyst at Consumer Reports. “It seems like every time you say something, things get more confusing.”

In fact, the tax rules are designed to encourage automakers to manufacture as many of their electric vehicles and all of their parts as possible in the United States or in countries with which the United States trades. They are also designed to keep tax credits from going to wealthy Americans who buy expensive luxury cars. The latest announcement, which will temporarily unlock more tax credits, is likely a good thing for consumers.

Understanding who and what is relevant

The uneven tax credit at the start of the year is just one of several potential sources of confusion.

Under the new EV tax credit rules, the Chevrolet Bolt EV and EUV are eligible for tax credits in the new year. They were previously ineligible because even though they were manufactured in North America — one of the requirements under the new rules — Chevrolet’s parent company, General Motors, and Tesla had long since sold more than 200,000 plug-in vehicles. This was the limit for any manufacturer to qualify for outgoing tax credit. New rules passed as part of the Inflation Reduction Act remove this restriction.

However, not every buyer and every EV will be eligible for the credit. For example, in addition to the requirement that the car be manufactured in North America, there will also be restrictions on its price. If it’s an SUV, van or pickup truck, it can’t have a sticker price of more than $80,000, or $55,000 if it’s a car.

These price limits will be based on the vehicle’s full Manufacturer’s Suggested Retail Price (MSRP) or sticker price, including all factory-installed options. It won’t matter if the seller is paying more for the car or if there is a rebate or discount. Rebate eligibility is based on actual MSRP only.

As a result, most Tesla models, including the Model X SUV and Model S sedan, and even the Model 3, will still not be eligible for tax credits, as currently priced on Tesla’s website. And the Mercedes EQS SUV, which is assembled in the U.S. and is currently eligible for tax credits, will not be eligible in the new year, according to the IRS website.

“It shuffles the deck as to who is eligible, and when this guidance comes out (in March), the deck will be shuffled again,” Harto said. “And that creates a huge mess for consumers, automakers and dealers.”

Also, spinning is not allowed. The person purchasing the vehicle must be the end user. If you are buying the car immediately to sell it to someone else, you cannot claim the loan.

There are also restrictions on the buyer’s income. The recipient cannot have a “modified adjusted gross income” of more than $150,000 for an individual, $300,000 for couples filing jointly, or $225,000 for a single head of household. These restrictions will keep many luxury electric car buyers from getting tax credits.

Andrew Koblenz, vice president of legal and regulatory affairs for the National Automobile Dealers Association, said the best thing car buyers can do is ask whether the particular vehicle they’re buying qualifies for the tax credit. Some vehicle models are made at more than one factory, so two identical-looking electric SUVs on the same dealer lot may not qualify or be eligible for the same amount of credit.

“It’s a great time to shop. It’s great that more cars are eligible now, but you still need to make sure the car you’re interested in is eligible,” Koblenz said. “You should ask your dealer and your manufacturer that question and make sure you’re eligible.”

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