- The Inflation Reduction Act of 2022 (IRA) is focused on reducing inflation, slashing prices on prescription drugs, and funding domestic energy production and clean energy solutions in the U.S.
- According to the latest estimates, about 70% of the 72 EVs previously eligible for up to $7,500 in tax credit rebates will now lose that Clean Vehicle Credit post-signing.
- Anyone who has made a down payment or a non-refundable deposit of more than five percent of the vehicle’s price before the law was signed can still get the EV tax credit.
In the United States, the very alluring $7,500 EV tax credit has been boosting electric vehicle sales for over a decade now.
The rules and stipulations of the EV tax credit—in effect since 2010—state that new, qualifying electric vehicles bought in or after 2010 could be granted a federal income tax credit of up to $7,500. For more than 10 years, this applied to both fully electric and plug-in hybrid models. However, that will all be changing soon with the Inflation Reduction Act.
These changes—which immediately go into effect after being signed into law—will have a direct impact on the total number of EVs still eligible for the tax credit in 2022 and beyond. (To be specific, some lawmakers say it is as many as 70% of the more than 70 electric vehicles currently eligible.)
So, what is the reasoning behind the Inflation Reduction Act? And which manufacturers and models will be directly impacted by its signing? Let’s break it all down in further detail below.
What is the Inflation Reduction Act?
|Name of the Law||Inflation Reduction Act of 2022|
|Date First Introduced||September 27th, 2021 (as the Build Back Better Act)|
|Date Signed||August 16th, 2022 (as the Inflation Reduction Act of 2022)|
|Signed By||President Joe Biden|
|Date Passed Through the House||November 19th, 2021 (as the Build Back Better Act)|
|Date Passed Through the Senate||August 7th, 2022 (as the Inflation Reduction Act of 2022)|
|Date Put Into Effect||August 16th, 2022|
The Inflation Reduction Act of 2022—also known as the IRA—is an effort by the United States government to cut back on inflation by bringing down the federal deficit, slashing the prices of prescription drugs, and putting additional funding into domestic energy production and clean energy solutions here in America. (Not to mention the impact it will have on the EV tax credit.) It quickly passed through Congress and made its way to President Joe Biden’s desk on August 16th, 2022. President Biden then signed it into law that same day.
The IRA came out of negotiations surrounding the proposed Build Back Better Act. This act has been reworked and reworded numerous times after opposition from various politicians on both sides of the aisle. After much congressional negotiating, the final form of the IRA was brought forth as an amendment to the Build Back Better Act. The bulk of its legislative text was effectively replaced, and Senators Chuck Schumer and Joe Manchin—the latter of whom was formerly in opposition to the act—sponsored it through the signing process.
What Does the Inflation Reduction Act Say?
Now officially signed into law, the IRA aims to raise $737 billion and authorize $369 billion for energy and climate change spending. Additionally, $300 billion will be spent on deficit reduction. Beyond this, the IRA also authorizes three years of subsidies for the Affordable Care Act and reform for lower prescription drug prices and taxes.
Make no mistake: despite its impact on the EV tax credit, the IRA is a truly historic law. As of this writing, it is the greatest investment in climate change prevention in the country’s history.
Experts predict that the IRA will drastically cut back on the US’s total greenhouse gas emissions. Some say it may be as much as 50% below levels in 2005 by the time 2030 rolls around. The IRA also represents one of the largest and most vital expansions of the Internal Revenue Service in years.
Which Manufacturers Will Lose the EV Tax Credit?
On the surface, the IRA might seem incongruous with the new law’s messaging about clean energy. However, there are still a significant number of EVs the IRA directly impacts.
According to the latest estimates, about 70% of the 72 EVs previously eligible for up to $7,500 in tax credit rebates will now lose that Clean Vehicle Credit post-signing. The specifics make it clear. Any manufacturer who assembles vehicles outside of North America will no longer be eligible.
Right off the bat, this means manufacturers such as Toyota, Hyundai, Porsche, and Kia have already lost their EV tax credit. There are other limitations on batteries, as well.
To get the credit, a buyer’s income must be less than $300,000 for joint filers, $225,000 or less if filing as head of household, and $150,000 or less for those filing individually. What’s more, the price of the EVs can’t exceed $55,000. For electric trucks, SUVs, and vans, the price can’t exceed $80,000.
On paper, the EV tax credit is still up for grabs. In practice, however, these limitations mean almost every EV manufacturer will lose the Clean Vehicle Credit in the years to come.
Who is Still Eligible for the EV Tax Credit?
|Ineligible EV Manufacturers After IRA Signing||EV Manufacturers Still Eligible After IRA Signing|
Now that President Biden has signed the IRA into law, only a couple dozen EVs of the original 72 recent models will retain the $7,500 EV tax credit. These still-eligible EVs mainly come from Audi, BMW, Chrysler, Ford, Jeep, Lincoln, Mercedes, Nissan, Rivian, Tesla, and Volvo.
While the loss of so many EV tax credits might seem counterintuitive to the law’s overall messaging, it actually makes sense looking forward. The IRA both grows the total number of eligible automakers and expands the definition of qualifying vehicles. For example, before the IRA’s signing, GM and Tesla could not hand out credits—now they can. What’s more, the credit can now apply directly to the sale instead of waiting until tax time.
Beyond this, the IRA also changes the language surrounding eligible vehicles. The wording is now “clean vehicles.” This means the Clean Vehicle Credit can eventually include future fuel-cell electrics or alternative still-to-be-developed fuels. Another major advantage? Used EV buyers can now get a tax credit, too—worth up to $4,000, or 30% of the EV’s sale price.
EV Tax Credit Loopholes
While the distinction between eligible and ineligible might seem clear-cut, there are actually several loopholes. These loopholes can earn EV owners the tax credit even if they fall outside of these new guidelines.
For starters, anyone who has made a down payment or a non-refundable deposit of more than five percent of the vehicle’s price before the law was signed can still get the EV tax credit. In anticipation of the bill, many vehicle manufacturers and retailers switched customer down payments to non-refundable deposits in hopes of them still qualifying.
Another major plus to this new law is the aforementioned inclusion of GM and Tesla now that the law eliminated the 200,000 credit cap. These manufacturers are incredibly popular in the EV market. More drivers may be motivated to get a Tesla or GM EV now that the credit cap is gone.
There’s also the possibility of an EV manufacturer assembling cars both inside and outside the US. If you check an EV’s VIN number, it’ll tell you all you need to know. This VIN could mean the difference between a credit and no credit.
What if You Bought an EV Earlier This Year?
If you bought an EV earlier this year and still haven’t looked into the EV tax credit, you might be out of luck. The new law does not include any language about retroactively claiming the tax credit. This is true even if your EV is still eligible under the IRA. It’s an unfortunate oversight, and it’s one that will directly hurt the pockets of those who don’t fall into any of the aforementioned loopholes.
Alas, there’s no doubt that the pros outweigh the cons. (Even if it might seem like there are more cons than pros right now.)
Sure, EV purchases in the immediate present are hit pretty hard by the IRA. However, EV purchases from 2023 onward will be a lot more appealing to consumers in the future. It’s tough for some to see this now, but just give it some time. By the time 2023 rolls around, the IRA will hopefully drive more EV purchases. And, there’s a motivation for EV manufacturers to make some significant changes for the better.
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