This savings opportunity will be much harder to capitalize on next year.
- The federal government is offering a $7,500 tax credit to electric vehicle buyers.
- However, new rules may come into force next year, limiting which taxpayers and vehicles qualify for the deduction.
Electric vehicles offer long-term benefits for both the environment and your bank account. At this point, however, there are still many barriers preventing them from becoming the dominant vehicle on the road. Its rarity also contributes to the second problem. This is a very high price.
If you’re planning to buy an electric car in the near future, it’s something you have to live with. . Here’s why.
Electric vehicles have a $7,500 tax credit
President Biden signed the Inflation Control Act into law in August 2022. The legislation, among other things, created her $7,500 tax credit for those who purchased a qualifying electric vehicle.
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A tax credit is a $1 reduction in tax. So he owes $10,000 to the federal government, and with a $7,500 tax credit, he can only borrow $2,500 instead. However, this particular tax credit is non-refundable. In other words, if the amount of tax paid reaches zero, the government will not provide the rest in the form of a refund.
The law also imposes a rule that went into effect on August 16, 2022, stipulating that a vehicle must be final assembled in the United States in order to qualify for the tax credit. This automatically excludes many European electric vehicles. If you want to know which vehicles are eligible for the credit at this time, you can check the list of eligible vehicles on his website for the U.S. Department of Energy.
Some manufacturers have set a cap of 200,000 electric vehicle credits, and once those credits are claimed, no one else can claim additional tax credits for that vehicle make and model. . This information is also posted on his website for the Department of Energy.
More rules will be added in 2023
It might seem like there are a lot of rules already, but more will be added next year. Beginning in 2023, taxpayers will be eligible for full clean vehicle credits only if they meet the following criteria:
- At least 40% of the battery’s critical materials must be extracted or processed in the United States or a country with which the United States has a free trade agreement.
- At least 50% of the value of the battery’s components must be manufactured or assembled in North America.
Even if you don’t check both of these boxes, you may still get less credit. Or you may get nothing. There are also limits that exclude some electric vehicles based on price, and some taxpayers may not be eligible if their income exceeds certain limits for tax filing status.
If that sounds completely confusing to you, don’t worry. The government is not going to leave you to guess which vehicles are eligible for credit and which are not. It should be possible to see at a glance whether a car is eligible.
However, it is no exaggeration to say that these additional requirements further reduce the list of eligible vehicles. So anyone looking to take advantage of this tax credit should buy an electric car now, if they can afford it. That way, you don’t have to worry about missing out on credit altogether when the new rules go into effect.
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