Tax credit confusion could lead to a rush for electric cars in early 2023


As the new year begins, a number of popular electric vehicles, specifically some Tesla and General Motors models, may be eligible for $7,500 in tax credits that they didn’t qualify for in 2022. But that eligibility may only last a few months.

This is because The Treasury Department announced this week that the restrictions on new tax breaks enacted in August as part of the Inflation Reduction Act will not be applied all at once. That means the rules will, temporarily, be more generous, allowing for a higher tax deduction on more electric cars, for the first few months of the new year.

The US Treasury Department, which enforces the rules, recently announced that rules on some of the new restrictions on tax breaks — including about where a car battery pack was collected and where the metals used in it came from — were being delayed until at least the hour in March 2023, when it announces the rules. proposed about this part of the requirements. According to the language in the legislation, the mere publication of “proposed guidance” on these rules, which the Treasury Department said would happen in March, would immediately lead to reductions in tax credits. But some of the new rules go into effect as originally scheduled in January. That leaves a window of about three months in which some vehicles can qualify for much higher tax credits than they will qualify for later.

general Motors, For example, it has previously said that once full restrictions go into effect—whenever they do—its electric cars will only be worth a $3,750 tax deduction. The company said it is expected to be two or three years before GM vehicles can, once again, qualify for the full $7,500 tax credit. To be eligible for potentially higher tax credits before March, the vehicle must have already been delivered to the customer before then, according to just-released Treasury Department guidance. This can make the time window narrower, especially for popular models that customers already have to wait for.

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While that could create a buying opportunity in the early months of the year, the downside is that it only adds to the confusion over an already bewildering set of rules – even by tax regulation criteria.

“I was kind of hoping for more clarity, not less,” said Chris Harto, a senior official. Policy Analyst with Consumer Reports. “Things seem to get more confusing every time you say something.”

Essentially, the tax rules are designed to incentivize auto manufacturers to make their electric cars and all parts for those vehicles, as far as possible, in the United States, or in countries with which the United States has trade agreements. They were also designed so that tax breaks would not go to wealthy Americans who buy expensive luxury cars. It’s likely the last announcement, which will temporarily unlock more tax credit money Mostly a good thing for consumers.

An unbalanced tax credit at the beginning of the year is just one of several potential sources of confusion.

Under the new electric vehicle tax credit rules, the Chevrolet Bolt EV and EUV are eligible for tax credits in the new year. They were previously ineligible because, despite being built in North America – a requirement Under the new rules — General Motors, Chevrolet’s parent company, and Tesla have long sold more than 200,000 electric cars. This was the maximum for any given manufacturer under the requirements for the tax credit issued. However, the new rules, which were enacted as part of the Inflation Reduction Act, remove this limit.

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However, not every buyer and not every electric vehicle will be eligible for credits. For example, besides the requirement that the car be built in North America, there would be restrictions on its price as well. If it’s an SUV, pickup truck or van, its sticker price should be no more than $80,000, and if it’s a car, it shouldn’t be more than $55,000.

These price limits will be based on the vehicle’s Manufacturer Suggested Full Retail Price (MSRP), or sticker price, including all factory-installed options. If the dealer charges the car more, or if there is a rebate or rebate, it won’t matter. Eligibility for the discount is solely based on MSRP in fact.

As a result, most Tesla models, incl The Model X SUV, Model S sedan, and even the Model 3, as currently priced on Tesla’s website, still don’t qualify for tax credits. The Mercedes EQS SUV, which is assembled in the US and is currently eligible for tax credits, according to the IRS website, will become ineligible in the new year.

“It mixes up the show in terms of who is eligible, and then the group will switch again when that guidance is issued [in March]Harto said. “This just makes a huge mess of consumers, automakers and dealers.”

Also, no flipping is allowed. The person who buys the vehicle must be the end user. If you’re buying the car just to immediately resell it to someone else, you can’t claim the credit.

There are also limits on the buyer’s income. The purchaser cannot have an “adjusted gross income” of more than $150,000 for an individual, $300,000 for a married couple, or $225,000 for a single head of household. These restrictions will prevent many buyers of luxury electric vehicles from getting tax credits.

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The best thing car shoppers can do, said Andrew Koblenz, vice president of legal and regulatory affairs at the National Automotive Dealers Association, is to ask if the specific vehicle they’re buying qualifies for a tax credit. Some car models are built in more than one plant, so two identical-looking electric SUVs in the same dealer’s batch may not qualify or may not qualify for the same amount of credit.

“It’s a great time to shop. It’s great that there are more vehicles that qualify now but you still have to make sure the vehicle you’re interested in qualifies,” Koblenz said. “You have to ask the dealer and the manufacturer that question and you have to make sure you qualify as well.”

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