Federal Tax Credit for Electric Vehicles Set to Change in 2023
Starting January 1, 2023, the federal tax credit for electric vehicles will undergo a significant change that will make it more attractive to buyers. The rebate, which can be up to $7,500 for qualifying new EVs and up to $4,000 for qualifying used EVs, will be available at the point of sale, rather than requiring buyers to claim it when filing their taxes.
More than 7,000 car dealerships have already signed up to offer the point-of-sale rebate, accounting for nearly half of all new car dealerships in the country. However, there may be a limited number of cars that qualify for the full $7,500 credit due to new restrictions on the components of zero-emission vehicles.
These changes are a result of President Biden’s Inflation Reduction Act, which aims to balance the incentives for zero-emission vehicles with the goal of building up the electric vehicle supply chain in North America. The tax credit has been split into two parts, with vehicles qualifying for a $3,500 credit based on sourcing guidelines for battery materials, and an additional $3,500 based on rules for battery components. Starting in 2024, these sourcing requirements will become more stringent, further impacting the availability of the full tax credit.
With these new restrictions, General Motors has announced that only its Chevy Bolt will qualify for the full tax credit, while the Cadillac Lyriq and Chevy Blazer will not. Ford has also stated that only its F-150 Lightning will qualify for the full $7,500 credit, with other models only eligible for partial credits.
Even Tesla, known for its proficiency in identifying and qualifying for clean energy credits and subsidies, is facing limitations on which of its electric vehicles will qualify for the tax credit.
As the new year approaches, more automakers are expected to announce which of their electric vehicles will qualify for the credit. The Treasury Department will also compile a list of eligible vehicles on its website.
While these changes add complexity to the electric vehicle industry, they also highlight the motivation behind the guidelines and the effort to balance the expansion of the EV market with the development of domestic supply chains.