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Most EV customers need to learn more about their federal EV tax credit eligibility as sales continue to soar, particularly now that a host of additional credits are available to consumers.
These incentives can significantly reduce the upfront cost of EV purchasing, making them more accessible to a broader range of potential buyers. However, understanding the intricacies of these tax credits can be challenging, and dealers must know more about them to communicate the savings to customers.
This article discusses the basics of EV tax credits in 2023 and beyond and what consumers need to know when they enter the showroom.
EV Tax Credit 2023: 7 Facts to Know
Seven EV tax credit fundamentals that all dealers should understand are as follows:
1. EV Tax Credit Values
The Inflation Reduction Act (IRA) extended the (up to) $7,500 EV tax credit until December 2032 for EVs put into service after December 31, 2022.
However, used EVs, defined as previously owned clean vehicles at least two years old, are eligible for a tax credit worth only the lesser $4,000 or 30% of the vehicle’s cost.
2. Vehicle Eligibility
However, not all EVs are eligible for tax credits. They must meet specific IRA criteria, which include (but are not limited to) the following:
- A “clean vehicle,” which means a vehicle with a battery capacity of 4-7 kilowatt hours with an MSRP of less than $55,000.
- A used “clean vehicle” bought for $25,000 or less.
- A pickup truck or SUV with an MSRP of less than $80,000.
3. EV Tax Credit Year
Customers can claim the tax credit the year they take delivery of the EV. The calculation used to determine the credit’s exact amount takes into account the sourcing and assembly of the car.
4. A Purchase Discount Option in 2024
Starting in 2024, customers can take the tax credit as an up-front discount at the time of purchase. This strategy means the customer transfers the credit to the dealer for tax purposes.
5. EV Tax Credit Income Limit
The IRA also sets an income cap limit. Customers will be ineligible for the EV tax credit if they meet one of the following criteria.
- A customer filing as single with a gross income of $150,000 or more.
- A married couple filing jointly with a combined income of $300,000 or more.
- A head of household making $225,000 or more.
6. EVs Purchased in 2022
The IRA does provide some relief for EV customers who had legally binding written commitments from 2022 to buy EVs delivered after these provisions went into effect.
More specifically, a customer who bought an EV before the IRA took effect (August 16, 2022) and meets the other requirements for the prior EV tax credit can still claim the credit based on those older rules.
For customers who purchased their EV between August 16 and December 31, 2022, the regulations for collecting the EV tax credit before the IRA was into effect still hold if they bought and took ownership of the EV between these dates.
7. Reclassification of SUVs
The IRS released new guidance stating that it will now use criteria based on the Environmental Protection Agency’s (EPA) Fuel Economy Labeling Standard to determine whether a vehicle is a car or an SUV. This change is in response to ongoing confusion surrounding vehicle classification.
Dealers must understand that this has implications for consumers because it makes some SUVs eligible for an EV tax credit when they previously were not.
Understanding EV Tax Credits Might Require Partnering with an Expert
EV tax credits are a critical factor sales teams must understand when discussing a potential purchase with a customer. These incentives can significantly reduce the upfront cost of an EV, making it more accessible, cost-effective, and (ultimately) appealing to consumers.
Additionally, it’s important to note that these incentives can change over time, so staying up to date with the latest policies and regulations is crucial. Communicating any updated EV tax credit incentives to prospective buyers can help them save money and contribute to a cleaner, greener planet.
All | February 08, 2024