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Congress currently provides a tax credit of up to $7,500 for purchasing certain new electric vehicles. The Inflation Reduction Act of 2022 (the “Act”) makes several changes to the credit and also has renamed the credit.

New Final Assembly Requirement

Vehicles sold after 08/16/2022 only qualify for the Clean Vehicle credit if their final assembly occurs in North America. The Act will drastically reduce the population of vehicles that will qualify for the credit. Per the IRS, the following vehicles currently meet the final assembly requirement and thus would qualify for the Clean Vehicle Credit if purchased after 08/16/2022 and before 2023. You can confirm that a vehicle meets the final assembly requirement by entering the VIN at the U.S. Department of Transportation’s VIN decoder (nhtsa.gov/vin-decoder).

Model
Year
VehicleModel
Year
VehicleModel
Year
VehicleModel
Year
Vehicle
2022Audi Q52022Ford Mustang
Mach-E
2022Lucid Air2023Mercedes EQS
2022, 2023BMW 3-Series Plug-In2022Ford Transit Van2022, 2023Nissan Leaf
2022BMW X52022, 2023Jeep Grand
Cherokee PHEV
2022Rivian EDV
2022Chrysler Pacifica PHEV2022, 2023Jeep Wrangler
PHEV
2022Rivian R1S
2022Ford Escape PHEV2022, 2023Lincoln Aviator
PHEF
2022Rivian R1T
2022Ford F Series2022Lincoln Corsair
Plug-In
2022Volvo S60

For those who had entered into a written contract to buy a new qualifying vehicle before 08/16/2022 but have yet to take possession of it, you can claim the credit based on the rules that were in effect before the Inflation Reduction Act. The final assembly requirement does not apply to you.

Vehicles Purchased and Delivered between 8/17/22 and 12/31/2022

If you buy and take possession of a qualifying vehicle after 08/16/2022 and before 2023, aside from the final assembly requirement, the rules in effect before the enactment of the Inflation Reduction Act continue to apply. The biggest constraint under these rules is the manufacturing caps that are applied to vehicles sold. Some manufacturers have hit the limits (GMC, Tesla) thus these vehicles will not qualify.

Vehicles That Qualify for the Credit after 2022

Additional rules will apply, which may bar your accessing the Clean Vehicle Credit. In addition to the final assembly requirement:

  • The Act provides that vehicles placed in service after 2022 must meet a minimum battery capacity of seven-kilowatt hours.
  • The credit will be based on meeting one or both of two new requirements dealing with critical minerals and battery components. Vehicles that meet a critical minerals requirement will be eligible for a $3,750 credit. Vehicles that meet a battery component requirement also qualify for a $3,750 credit. Vehicles that meet both requirements will qualify for a $7,500 credit. These requirements are designed to ensure that the vehicles meet certain standards regarding the minerals used in their batteries and that a certain percentage of the vehicle’s battery is manufactured or assembled in North America. The manufacturer will have to certify this to the IRS and to you. Most of the current electric vehicles will not qualify under these new standards—at least in the near term.
  • Some used vehicles will qualify if purchased after 2022. A reduced credit of $4,000 or less is available, and different MAGI limits will apply. There are other special rules applicable to used clean vehicles, but some of these may qualify for credit.  
  • The credit is not allowed for vehicles with an MSRP over $55,000 ($80,000 for vans, sport utility vehicles, and pickups).
  • No credit will be allowed if your MAGI exceeds $300,000 (for taxpayers filing joint returns or surviving spouses), $225,000 (for heads of household), or $150,000 (for other taxpayers). The prior year MAGI may be used if lower.

As you can see, the Act significantly changes the rules for claiming tax credits for electric vehicles. The final assembly requirement alone will drastically reduce the pool of qualified vehicles. The MSRP limit will also be a consideration, given current inflationary pressures. Finally, your income itself may be a bar to claiming the credit. As mentioned, if you are contemplating a purchase, you may wish to act sooner than later.

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