Biden’s new electric vehicle tax credits, explained

The Inflation Reduction Act will replace current EV tax credits with new ones, but there are some confusing limitations and timelines to sort through.

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Rachael Brennan

Rachael Brennan

Senior Editor & Licensed Auto Insurance Expert

Rachael Brennan is a senior editor and a licensed auto insurance expert at Policygenius. Her work has also been featured in MoneyGeek, Clearsurance, Adweek, Boston Globe, The Ladders, and AutoInsurance.com.

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On Tuesday, President Biden signed the new Inflation Reduction Act into law. [1] One of the biggest changes? New tax credits for electric vehicles — whether you bought one this year or plan to in the future.

However, the qualifications, limitations, and timelines are a bit confusing, to say the least, so we confirmed all the details with the IRS, the Department of Energy, and the law itself to demystify the new EV tax credits.

How much is the new EV tax credit?

The new credits will be $7,500 for new vehicles and $4,000 for used vehicles, and will apply to the purchase of EVs, plug-in hybrids, and cars with hydrogen fuel cells, and will be available from 2023 to 2032.

However, there are some limitations.

  • Income restrictions: Married couples must have an adjusted gross income (AGI) of less than $300,000 and single people must have an AGI of less than $150,000. 

  • Vehicle price restrictions: You can earn a tax credit for the purchase of an electric van, SUV, or pickup truck that costs less than $80,000, while other EVs have a limit of $55,000.

  • Manufacturing restrictions: If your EV (or the individual parts, like batteries) was manufactured or sourced outside of North America, you likely won’t be eligible for the tax credit.

  • Used EV restrictions: To qualify for the credit, you would need to purchase a car that is at least two model years old, and the credit would be either $4,000 or 30% of the price of the car, whichever is lower, with a price cap of $25,000.

When do the new EV tax credits take effect?

The timeline is a bit confusing. The Inflation Reduction Act eliminated the old EV tax credits immediately, but the new credits don’t go into effect until January 1, 2023. The bill includes a “transition rule” that allows buyers who signed a binding purchase agreement for an EV before August 16, 2022, to qualify under the old EV tax credit agreement.

But what about EV purchases between August 17 and December 31 of this year? According to the IRS: “If you purchase and take possession of a qualifying electric vehicle after August 16, 2022 and before January 1, 2023, aside from the final assembly requirement, the rules in effect before the enactment of the Inflation Reduction Act for the EV credit apply (including those involving the manufacturing caps on vehicles sold).” [2]  

Which electric vehicles qualify for the new tax credits?

Finally, the EV you purchase(d) must meet a new "final assembly in North America" requirement. The Department of Energy has assembled a list of electric vehicles that may meet the final assembly rule, but if you want to know where a specific vehicle was manufactured, you can use the NHTSA VIN Decoder to find out if a particular car meets the manufacturing requirements for the tax credits in 2022.

Here's the list of electric vehicles manufactured in North America according to the Department of Energy. If the sales cap is listed as "met," that means the model has "reached a cap of 200,000 EV credits used and are therefore not currently eligible for the Clean Vehicle Credit," according to the Department.

Model year

Vehicle

Sales cap

2022

Audi Q5

2022

BMW 3-series Plug-In

2022

BMW X5

2022

Chevrolet Bolt EUV

Met

2022

Chevrolet Bolt EV

Met

2022

Chrysler Pacifica PHEV

2022

Ford Escape PHEV

2022

Ford F Series

2022

Ford Mustang MACH E

2022

Ford Transit Van

2022

GMC Hummer Pickup

Met

2022

GMC Hummer SUV

Met

2022

Jeep Grand Cherokee PHEV

2022

Jeep Wrangler PHEV

2022

Lincoln Aviator PHEV

2022

Lincoln Corsair Plug-in

2022

Lucid Air

2022

Nissan Leaf

2022

Rivian EDV

2022

Rivian R1S

2022

Rivian R1T

2022

Tesla Model 3

Met

2022

Tesla Model S

Met

2022

Tesla Model X

Met

2022

Tesla Model Y

Met

2022

Volvo S60

2023

BMW 3-series Plug-In

2023

Bolt EV

Met

2023

Cadillac Lyriq

Met

2023

Mercedes EQS

2023

Nissan Leaf

Source: US Department of Energy, Alternate Fuels Data Center

Corrections

No corrections since publication.

Author

Senior Editor & Licensed Auto Insurance Expert

Rachael Brennan

Senior Editor & Licensed Auto Insurance Expert

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Rachael Brennan is a senior editor and a licensed auto insurance expert at Policygenius. Her work has also been featured in MoneyGeek, Clearsurance, Adweek, Boston Globe, The Ladders, and AutoInsurance.com.

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