The federal Inflation Reduction Act’s expanded Electric Car 2023 Tax Credit are expected to increase interest in electric vehicles significantly over the course of the upcoming year. The biggest domestic auto market, California, is anticipated to ban the sale of new gas-powered passenger vehicles by 2035, thus mandating that all new cars sold there be electric. This should increase the appeal of EVs.
Before January 1, 2023, new all-electric, plug-in hybrid, and fuel cell electric vehicles may qualify for a federal income tax credit of up to $7,500. When the vehicle was purchased and put into operation, the battery’s capacity, the location of the car’s manufacturing, and whether the manufacturer’s sales cap has already been reached are just a few of the variables that will affect the credit’s availability and quantity.
Electric Car 2023 Tax Credit
The updated Electric Car 2023 Tax Credit of up to $7,500 on some new EVs (see the list of 2022 and 2023 models that qualify) and a new tax credit of up to $4,000 on used EVs are both provisions of the Inflation Reduction Act of 2022, which aims to solve issues with taxes, healthcare, and climate change.
When President Joe Biden signed the legislation in August, some new regulations—like the requirement that new EVs be manufactured in North America in order to qualify for a tax credit—began to apply. Others will take effect on January 1, 2023, however leasing might provide a workaround.
It will initially be applied to the 2023 tax return you submit in 2024. Customers will be able to transfer their credit to a dealership starting in 2024 to lower the vehicle’s sticker price.
Important Clauses Under IRA EV Tax Credits
- A tax credit of up to $7,500 will be given for new electric and fuel-cell automobiles. Some plug-in hybrid cars will still be eligible.
- Only automobiles with prices below a particular threshold will be eligible. The ceiling for SUVs, pickup trucks, and vans are $80,000 per vehicle. The credit cap for sedans, hatchbacks, waggons, and other cars is $55,000. This clause might not be applicable if a car is leased.
- There won’t be a cap on the quantity of credit-eligible automobiles that an automaker can sell.
- Unlike in previous years, a complex system of calculations based on where the vehicles are produced and where the components that make up their batteries come from will determine the precise amount of the new tax credit. These restrictions will become more stringent after they take effect in March and continue through 2026. This clause might not be applicable if a car is leased.
- The only automobiles that qualify for a tax credit are those built in North America. This clause might not be applicable if a car is leased.
- As of December 31, 2023, automobiles having parts from “foreign entities of concern,” such as China and Russia, will be excluded. This clause might not be applicable if a car is leased.
- Dealerships will be permitted to provide customers with the value of a tax credit up front beginning in 2024. For car buyers, this might make the process easier.
- Tax incentives are now available for “bidirectional” EV chargers, which can charge your car and power your home simultaneously.
Income Specification to gain EV 2023 Tax Credit
- Specific income requirements must be met by car buyers. The credit is still available to households with an adjusted gross income of up to $300,000, but heads of household must make less than $225,000 and individual filers can only be eligible if their income is less than $150,000. This clause might not be applicable if a car is leased.
- For the first time, purchasers of used EVs will be eligible for a tax credit of $4,000 or 30% of the sale price, whichever is lower, but only if they purchase the vehicle from a dealership and only if it hasn’t been sold before after August 16, 2022.
- For purchasers of used EVs, the income requirement is lower: $150,000 for joint filers, $112,500 for a head of household, or $75,000 for an individual.
Which Vehicles Qualify for the New Electric Car 2023 Tax Credit?
The consumer tax benefit will only be available to EVs and PHEVs that have their final assembly location in North America. There are also limits on how much cars can cost. The ceiling for SUVs, pickup trucks, and vans is $80,000 per vehicle. The credit cap for sedans, hatchbacks, waggons, and other cars is $55,000. These restrictions are based on a vehicle’s manufacturer’s suggested retail price (MSRP), not its sale price, therefore a premium car that was significantly discounted would not be permitted.
Aside from the necessity for final assembly, the guidelines for the EV credit that were in place before to the Inflation Reduction Act’s passage apply if you buy and take possession of a qualifying electric vehicle on or after August 16, 2022, but before January 1, 2023.
According to the IRS, the makers of the following EVs and PHEVs have said that, depending on battery size, they are currently eligible for a tax credit ranging from $3,751 to $7,500, provided other conditions, such as buyer income and MSRP, are satisfied.
|Make and Model||Full Tax Credit|
|CADILLAC (GM) (would not qualify until 1/1/23)|
|CHEVROLET (GM) (would not qualify until 1/1/23)|
|Bolt EUV (2022-2023)||$7,500|
|Bolt EV (2022-2023)||$7,500|
|F-150 Lightning (2022-2023)||$7,500|
|Mustang Mach-E (2022-2023)||$7,500|
|TESLA (would not qualify until 1/1/23)|
|Model 3 (2023)||$7,500|
|Model Y (2023)||$7,500|
Plug-in Hybrid Electric Vehicles
|Make and Model||Full Tax Credit|
|Q5 TFSI e Quattro (2023)||$7,500|
|X5 xDrive45e (2022-2023)||$7,500|
|Pacifica Plug-in Hybrid (2022-2023)||$7,500|
|Escape Plug-in Hybrid (2022-2023)||$7,500|
|Grand Cherokee 4xe (2022-2023)||$7,500|
|Wrangler 4xe (2022-2023)||$7,500|
|Aviator PHEV (2022-2023)||$7,500|
|Corsair Plug-in Hybrid (2022-2023)||$7,500|
|S60 Recharge /Extended Range (2022)||$7,500|
|S60 T8 Recharge (Extended Range)||$7,500|
Which Cars May Only Be Leased to Qualify for the New EV Tax Credit?
These existing and future EVs (as well as two fuel-cell vehicles) aren’t produced in North America, so if they are bought, they probably won’t be eligible for a tax credit. However, if their manufacturing location changes in the future, that could change. Additionally, if a car is leased as opposed to purchased, dealers may pass along a tax advantage to customers.
- Audi E-Tron
- Fisker Ocean
- Genesis GV60
- Hyundai Ioniq 5
- Hyundai Ioniq 6
- Hyundai Kona Electric
- Hyundai Nexo
- Jaguar I-Pace
- Kia EV6
- Kia Niro Electric
- Lexus RZ
- Mazda MX-30
- Mercedes-Benz EQB
- Nissan Ariya
- Polestar 2
- Subaru Solterra
- Toyota bZ4x
- Toyota Mirai
- Volkswagen ID.4
- Volvo C40
- Audi E-Tron GT
- BMW i4
- BMW i7
- BMW iX
- Chevrolet Silverado EV
- Ford F-150 Lightning
- Genesis G80 Electric
- GMC Hummer EV
- Lucid Air
- Mercedes-Benz EQE
- Mercedes-Benz EQS
- Porsche Taycan
- Rivian R1T
- Tesla Cybertruck
- Tesla Model S
- Tesla Model X
Everything you require to know about Electric car 2023 tax credits for your new or existing electric vehicle is available here. You now have the information you need to determine whether your car qualifies for a federal tax credit and how much you might be able to save.
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