Summary:
The Inflation Reduction Act of 2022 (IRA) is the biggest federal investment to fight climate change in American history. The law provides financial incentives to consumers who invest in solar panels, electric autos, or high-efficiency appliances. The incentives for both new and second-hand electric vehicles (EVs) are complicated and have many moving parts. Each has different specifications related to the buyer and the vehicle, like the price and household income.
The tax credits cover project expenses in the year when the project is completed. Beginning in 2022, the improved residential clean energy credit is retroactive. The 30% credit is available for solar panel installations and other qualifying projects finished between January 1, 2022, and December 31, 2032. Before 2027, only oil furnaces and hot water boilers with a specific efficiency rating were eligible. The IRA creates two rebate programs tied to clean energy and efficiency. These rebates are intended to be provided at the time of sale, unlike some tax benefits. They won’t be widely accessible until the second half of 2023 or later, most certainly. There is no specified time limit in the law for this procedure.
Basic rules:
The IRA, which President Biden signed into law, has altered the market for Americans looking to purchase an EV. The law replaces an earlier tax credit for EVs with a new set of credits, albeit where a car is constructed determines which credits apply.
The production requirements were put into effect as a result of the legislation’s adoption on August 16. More limits, such as rigorous geographical restrictions on where batteries can be mined and constructed, come into effect starting in 2023 and escalate over the ensuing years.
A list of automobile models that most likely qualify for the credit has been made public by the energy department. The VIN decoder should be used by drivers to verify whether a vehicle is eligible using their vehicle identification number, the agency advised.
Models that likely qualify in 2022:
- BMW 330e and X5
- Chrysler Pacifica PHEV
- Ford F Series
- Ford Escape PHEV and Mustang MACH E
- Ford Transit Van
- Jeep Grand Cherokee PHEV and Jeep Wrangler PHEV
- Lincoln Aviator PHEV and Corsair Plug-in
- Lucid Air
- Nissan Leaf
- Rivian EDV, R1S, and R1T
- Volvo S60
Models that likely qualify in 2023:
- BMW 330e
- Mercedes EQS SUV
- Nissan Leaf
The most well-liked EVs on the market in the United States, including Tesla models, are not included on that list. Despite being produced in North America, their manufacturers have exceeded a sales cap permitted by a previous law, therefore they are currently ineligible for the credit. The sales cap will be lifted in 2023 when new regulations, such as those concerning batteries, take effect.
Therefore, the Chevrolet Bolt EV and EUV, the GMC Hummer Pickup and SUV, the Tesla Model 3, Model S, Model X, and Model Y vehicles are not qualified for credit under the new inflation rule. No information was provided by the agency regarding which Toyota-branded EVs qualify for a tax credit.
Here are some things to keep in mind when looking for an EV.
Who’s eligible for the credits?
Individuals who make up to $150,000 annually and married couples filing jointly who make up to $300,000 annually are eligible for the credits.
This income cap requirement was put in place to make electric cars more affordable for those who are less well-off and to encourage automakers to reach out to new markets.
Electric vehicle adoption has long been hampered by the high price of these vehicles. Currently, an electric vehicle costs $66,000 on average.
Any eligibility criteria for the EV batteries?
Yes, and that’s significant since an electric car’s battery is its most crucial component. Minerals in the EV battery must come from North America or a nation with which the United States has a free trade agreement in a particular quantity. Additionally, a large portion of the battery’s components must be produced or built in North America. For auto firms, this is likely to make things more difficult.
Carla Bailo, CEO of the Center for Automotive Research, argues that it will be a significant weight and obstacle to overcome. “North America and our free trade partners don’t have the necessary mining infrastructure, and China accounts for about 90% of the world’s refining capacity.”
According to the Alliance for Automotive Innovation, a Washington D.C.-based trade association, and lobby group, none of the electric vehicles currently on the market will be eligible for the full tax credit when the battery requirements go into effect in 2023.
Any possibility to get partial tax credits?
A purchaser may be qualified for a $3,750 partial credit if 40% of the key minerals used in EV batteries originate from countries with which the United States has free trade agreements. The remaining $3,750 is related to battery parts. 50% of components must be produced or assembled in North America starting in 2023.
The number of minerals that must be imported from the United States or other trading partners will rise over time for use in EV batteries. The required quantity of parts produced or assembled in North America will also increase.
For EV batteries, more minerals will have to be imported from the US or other trade nations over time. This will result in a growing need for parts manufactured in North America.