You may have been eyeing an electric car for a while and secretly writing to Santa to bring you one, but is 2022 or 2023 a better year to purchase it to utilize the highest electric vehicle (EV) credit?
The enhanced EV credits have been widely publicized with the enactment of the Inflation Reduction Act. Many who wanted Tesla whose cars wouldn’t qualify for the EV credit in 2022 due to the manufacturer’s cap have chosen to wait until 2023 to be able to utilize the full credit when the cap is formally eliminated.
Well, you may end up instead with a bag of coal as the full credit of $7,500 may be out of reach for many in 2023 if the EV credit governing rules are implemented without modifications.
Here are the new requirements to qualify for the full EV credit in 2023. The primary limitations are:
1. EV must be assembled in North America. Only a handful car manufacturers would likely qualify in 2023.
2. Income limit – the EV credit is fully phased out for the following taxpayers:
a. Joint filers whose adjusted gross income is over $300,000.
b. Single filers whose adjusted gross income is over $150,000.
c. Head of household filers whose adjusted gross income is over $225,000.
3. The MSRP of the vehicle must not exceed the following:
a. $55,000 (sedan).
b. $80,000 (SUV, van, or truck).
4. Battery capacity – 7 KW hours vs 4 KW hours in 2022.
5. Battery mineral content– at least 40% of its battery critical minerals are extracted, processed, and/or recycled in North America or a country the US has a free trade agreement with.
6. Battery component - at least 50% of its battery components are produced or manufactured in North America.
$3,750 or 50% of the EV credit is based upon meeting the battery mineral sourcing requirement and another $3,750 of the credit is based upon meeting the battery component manufacturing requirement.
Based on the above battery requirements as they exist now, the best-case scenario is that some electric cars may qualify for half of the credit or $3,750 as the consensus among industry experts is that no electric cars can currently meet the critical mineral sourcing requirement.
The US Treasury Department has postponed issuing its guidance on battery requirements until sometime in March 2023 which is interpreted by some industry experts as a narrow window of opportunity to qualify for the full EV credit for purchases made between January 1, 2023, and sometime in March 2023 if other requirements (items #1-3) have been met.
In the meantime, Tesla announced deep discounts of $7,500 and 10,000 miles of free Supercharging for those who take delivery of new Model 3 or Model Y between December 21 and 31, 2022 which may compensate for the phased-out credit in 2022.