- The Inflation Reduction Act: score up to $7,500 for a new EV or $4,000 for a used one.
- From 2024, the new rules make it easier – buyers can now secure their EV tax credit right when they buy, no more waiting for tax season. And the best part? No need for tax liability.
- Fewer new EVs are set to qualify for a tax break though due to stricter car manufacturing requirements.
In 2024, claiming the $7,500 tax credit for new electric vehicles will be a breeze for many, but others might find it more challenging. The conflicting dynamics stem from concurrent federal policies coming into play.
Starting January 1, a new policy allows car dealers to hand you the EV tax break right at the point of sale – whether it’s cash, a discount, or a down payment. No more waiting until tax season for that financial perk!
With the revamped system, consumers essentially ‘transfer’ their federal tax credit to the car dealer. In return, the dealer then hands over that tax break to consumers. This applies to both new and used EVs, with credits valued at up to $7,500 or $4,000, respectively.
Moreover, under the new system, consumers qualify for the tax break regardless of their tax burden, eliminating the current requirement. As the current nonrefundable tax credit often limits the benefit to buyers with federal tax liabilities, this shift aims to ensure broader accessibility, especially for households with lower incomes.
Ingrid Malmgren, Policy Director at Plug In America, said:
“These new policies will make the tax credit both easier to claim and more accessible starting in 2024, while making EVs cheaper for consumers.”
However, consumers seeking a tax break may find a limited selection of cars next year. The Inflation Reduction Act, signed by President Joe Biden in 2022, introduces manufacturing requirements to bolster domestic EV supply chains. While these rules may disqualify some EVs in the short term, it’s important to note that they only apply to new purchases, leaving used models and leases unaffected.
Come 2024, EVs with battery components crafted or assembled by a ‘foreign entity of concern’ (China, Iran, North Korea, and Russia) won’t make the cut for a tax credit. The hiccup here is that China currently plays a major role as a supplier for EV battery components. With the new restriction in 2024, the exclusion of EVs with Chinese components from the tax credit poses a challenge due to China’s significant presence in the global supply chain for electric vehicles. As a result, the expectation is there will be fewer cars available Jan. 1 and sadly, they’re the more affordable ones.
The U.S. Department of Energy maintains a list of new and used EVs that qualify for either a full or partial tax credit.
The caveats?
Thinking of that point-of-sale discount? Unfortunately, not all dealers will be in, but most are expected to be. Just double-check with your dealer before sealing the deal.
Buyers are also required to file an income tax return for the year when they transfer their EV tax credit to a dealer.
Additionally, the EV tax credit comes with eligibility requirements for both cars and consumers. Household income is a key factor, and the rules differ for new and used EVs. For example, married couples who file a joint tax return are only eligible for a new EV tax credit in 2024 if their annual income is $300,000 or less in either 2023 or 2024. For used EVs, the income threshold is $150,000 for married couples. But dealers won’t be diving into your finances. It’s on you to swear by your eligibility. Slip up, and you might find yourself repaying the full credit value to the IRS come tax time.
The 2024 landscape brings a mixed bag of opportunities and challenges for EV enthusiasts eyeing the $7,500 tax credit. The revamped policies promise ease and accessibility, with tax breaks available right at the point of sale. However, the road ahead isn’t without its twists. Supply chain restrictions and exclusions based on foreign manufacturing could limit options, particularly affecting more affordable choices. As the EV market undergoes these transformations, it’s crucial for buyers to navigate the caveats diligently – from dealer participation in the point-of-sale discount to the intricacies of income thresholds. The push for a greener future comes with its complexities, requiring consumers to stay informed and make strategic moves in the evolving EV landscape.
