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How to cash in on the new wave of electric car tax credits and rebates that could save you thousands on a new ride

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Electric car power chargingNew details about the federal EV tax credits are set to come out in March.

Source Photo/Getty Images

  • Electric vehicles are expensive, but tax credits might be able to help.
  • It’s important to know the ins and outs of the EVs that qualify for credits.
  • Federal tax incentives are crucial for EV buyers, but state rebates matter, too.

It’s no secret that electric cars aren’t all that affordable, at least not yet. US buyers of new EVs spent an average of $61,448 in December, according to Kelley Blue Book — and it might be a while before that changes. 

But federal and state tax credits that give you money back for buying an EV could mean you’re in luck if you’re looking to plug in — if you know how to cash in. 

The Biden Administration’s Inflation Reduction Act, passed last August, introduced some new EV credits and extended existing ones, with some changes.   

Some of the IRA’s stipulations went into effect at the start of the year. Others will go into effect in March, when the Treasury and IRS issue additional guidance, according to Plug In America.

While the revised federal credits bring some advantages to car-buyers, the law’s efforts to boost US manufacturing also restrict which vehicles and automakers will be able to comply. That means not every EV is likely to make the cut, at least in the near-term.

But there’s also different state credits to consider.

Here’s what to know about claiming tax credits and rebates on electric car purchases.

Rivian manufacturingNew EVs that follow certain qualifications are eligible for a $7,500 credit for now — until the Treasury and IRS release further guidance.

Rivian

Federal EV tax credits

Some general housekeeping: To qualify for a federal tax credit, your EV must be made by a qualified manufacturer (more details if you keep reading), it can’t be a motorcycle or e-bike, and you can’t buy it just to get the credit, then resell the vehicle. 

Here’s a look at what’s currently in place.

New electric vehicles — referred to in the IRA as “clean vehicles”:

  • This credit was expanded and underwent some changes under the IRA. 
  • New EVs are eligible for a $7,500 credit for now — until the Treasury and IRS release further guidance. That guidance could mean automakers have to have increasing percentages of home-grown battery materials in their EVs over the coming years in order to qualify. 
  • The 200,000 vehicle cap per manufacturer has been eliminated, making Tesla, GM, and Toyota eligible once again.
  • The vehicle must have a battery capacity of 7 kilowatt hours or more — all EVs currently available in the US have large enough batteries to qualify for the maximum credit, while all plug-in hybrids can qualify for at least the minimum credit — and the gross vehicle weight rating must be less than 14,000 pounds. (For context, the gargantuan Hummer EV weighs about 9,000 pounds.) The IRS has issued a list of manufacturers and models for new qualified clean vehicles, which you can find here.
  • Final assembly of the vehicle must take place in the US.
  • The taxpayer adjusted gross income limits include:
    • $300,000 for joint filers
    • $225,000 for head of household
    • $150,000 for single filers
  • MSRP caps include:
    • $80,000 for vans, SUVs, and pickup trucks
    • $55,000 for all other vehicles
  • If you can, you should try to take delivery of an EV before the new guidance in March kicks in, if you know it might no longer qualify with those new details. So long as you prove on your tax return you were in possession of the vehicle before the March guidance, vehicles that won’t qualify anymore after that, but do qualify for this short period of time, will count.
  • It’s important to check the IRS site, because some variations of the same vehicle model have different costs, like the Tesla Model Y 7-seat vs 5-seat variations.
  • You can also type in your VIN on the Department of Energy’s page here to see if your vehicle meets the requirements.

Lithium extractionExperts expect that more rules around the federal tax credits, to come out in March, will specify that qualifying EVs must include a minimum percentage of minerals must be extracted or processed in the US (or by US trade partners).

Lilac Solutions, Inc.

What happens in March:

  • Your credit amount will be determined by the critical minerals and battery components criteria. Both criteria will need to be met to get the full $7,500 tax credit. Otherwise, each will be split into two equal $3,750 credits, which buyers could be eligible for if their vehicle abides by one or the other.
  • Critical minerals ($3,750):
    • A minimum percentage of minerals must be extracted or processed in the US — or via partners with which the US has a free trade agreement — or recycled in North America for the vehicle to qualify, according to Plug In America.
  • Battery components ($3,750):
    • There will be a minimum percentage of battery components that must be made or assembled in North America for the vehicle to qualify.
  • There may not be any or many EVs that qualify at that time, per Plug In America.

If you’re buying used:

  • The used EV credit took effect for the first time on January 1 and is expected to be in effect until the credit expires. 
  • The vehicle must be at least two years old, under $25,000, and sold by a licensed dealership, according to Plug In America.
  • Taxpayer income caps:
    • $150,000 for joint return or surviving spouse
    • $112,500 for head of household
    • $75,000 for single filers, others
  • Taxpayers are eligible for an up to $4,000 credit or 30% of the vehicle price (whichever is less).
  • The purchaser cannot be the same person who bought it new, per Plug In America.
  • There can only be one credit taken per vehicle. 
  • Taxpayers can only use this credit once every three years.

Tesla electric cars charge at a Supercharger.Not every EV is likely to make the cut (or comply with the requirements specified by the federal tax credits), at least in the near-term.

George Rose/Getty Images

State credits

Different states have different incentives for EVs, in addition to the federal tax credits. Not every state has an electric car tax credit or rebate program, so it’s important to check individual state websites for information. Here’s a look at just a few examples.

Colorado: 

  • Before January 1, 2026, a $2,000 tax credit for purchase and $1,500 for lease, of a light-duty EV or plug-in hybrid electric vehicle, per calendar year.
  • For a light-duty electric truck, $2,800 for purchase and $1,750 for lease, according to the Alternative Fuels Data Center.

Illinois:

  • Rebates for residents for a new or used EV
    • For the purchase or lease beginning July 1, 2022: $4,000
    • For the purchase or lease beginning July 1, 2026: $2,000
    • For the purchase or lease beginning July 1, 2028: $1,500 

New York: 

  • Rebates up to $2,000 for the purchase or lease of a new EV with the following eligibility:
    • Four-wheeled vehicle manufactured for use on public roads
    • Gross vehicle weight rating of no more than 8,500 pounds
    • Maximum speed of at least 55 miles per hour
    • Propelled in part by an electric motor that draws electricity from a source with at least four kWh capacity, and capable of being charged by an external electricity source 

Rhode Island:

  • New vehicles no more than $60,000 and used vehicles no more than $40,000 purchased on or after July 7, 2022 qualify with the following rules:
    • New zero-emissions vehicle receives $2,500; used zero-emissions vehicle received $1,500
    • New plug-in hybrid EV receives $1,500; used plug-in hybrid EV receives $750 
Read the original article on Business Insider
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