Tax credits for electric cars are coming. How do they work?

WASHINGTON (AP) – Starting January 1, many Americans will be eligible for a tax credit of up to $7,500 for the purchase of an electric vehicle. The credit, which is part of the changes enacted in the Inflation Reduction Act, is designed to stimulate EV sales and reduce greenhouse gas emissions.

READ MORE: More than ten states are struggling with California’s electric vehicle adoption

But a web of requirements, including where the cars and batteries must be produced to qualify, is doubting whether anyone can get the full $7,500 credit next year.

For at least the first two months of 2023, however, the delay in the Ministry of Finance’s rules for the new benefit will allow the full credit to be available temporarily for consumers to achieve certain income and cost limits.

The new law also provides a small credit for people who buy a used EV.

Some types of EV that were eligible for another tax credit that began in 2010 and will end this year may not be eligible for the new credit. Many EV models made by Kia, Hyundai and Audi, for example, are not eligible because they are manufactured outside the US in North.

The new tax credit, which lasts until 2032, is intended to make cars without windows more affordable for more people. Here’s a closer look at it:

What’s new for 2023?

The credit of up to $7,500 will be offered to people who buy some new electric cars as well as some gas-electric hybrids and hydrogen fuel cells. For people who buy a used car that uses battery power, a $4,000 credit will be available.

But the question of which vehicles and customers will qualify for the loans is complex and will remain uncertain until the Treasury issues regulations. maybe in March.

What is known now is that in order to qualify for the credit, new EVs must be manufactured in North America. In addition, restrictions on car prices and buyers’ incomes are expected to disenfranchise wealthy buyers.

Starting in March, the complex provisions will also be controlled battery part. Forty percent of rock minerals must come from North America or a country with which the US has a trade agreement or be recycled in North America. (That limit will eventually go to 80 percent.)

And 50 percent of the parts of the battery must be made or installed in North America, resulting in up to 100 percent.

Starting in 2025, minerals cannot be obtained from a “foreign concern,” especially China and Russia. Battery parts will not be available in those countries starting in 2024 – a major setback for the auto industry because most of the electrical steel and parts are coming from China.

There are also battery size requirements.

What vehicles are eligible?

Because there is so much uncertainty left, it is not completely clear.

General Motors and Tesla find the most EVs assembled in North America. Each stone is also made in the United States. But due to the demand for stone materials, minerals and components, it is likely that consumers will have access to those first. car only half the tax credit, $3,750. GM says its eligible EVs should be eligible for a $3,750 credit in March, with the full credit due in 2025.

But until the Finance Office issues its rules, the requirements to control minerals and the parts that must be extracted will not be possible. This will allow buyers to receive a full $7,500 tax incentive for eligible models beginning in 2023.

SEE: How the Inflation Reduction Act affects your taxes

The Department of Energy says 29 EVs with plug-in applications will be produced in North America in the 2022 and 2023 model years. They are from Audi, BMW, Chevrolet, Chrysler, Ford, GMC, Jeep, Lincoln, Lucid, Nissan, Rivian, Tesla, Volvo, Cadillac, Mercedes and Volkswagen. But due to price restrictions or large battery requirements, not all of these vehicles will be eligible for approval.

What about the weather?

To qualify, you cannot have a net worth of more than $55,000. Pickup trucks, SUVs and vans cannot exceed $80,000. This will cancel out two more expensive Tesla models. Although Tesla’s best seller, the example 3 and Y, will qualify, with options, those cars that may exceed the price limits.

Kelley Blue Book says the average EV is currently priced at $65,000, although cheaper models are coming.

Will I be eligible for credits?

It depends on your income. For new EVs, buyers cannot have an additional income of more than $150,000 if single, $300,000 if filing jointly and $225,000 if filing as a family.

For used EVs, buyers can’t earn more than $75,000 if they’re single, $150,000 if they file jointly and $112,500 if they’re a household.

How to pay the debt?

Initially, it will be applied to your 2023 tax return, which you will file in 2024. Starting in 2024, buyers can transfer the credit to a dealer to reduce the value of the car by purchase.

Will EV sales increase?

Yes, but it will probably take a few years, says Mike Fiske, associate director for S&P Global Mobility. Credit is likely to trigger a sales boom early next year due to the Treasury’s delay in releasing the pressure points. But most automakers are selling every EV they build and can’t scale because of a lack of parts, including computer systems.

READ MORE: As technology advances, converting traditional cars to electric becomes more and more popular.

And automakers may have problems verifying the source of the minerals and parts of the battery, a requirement for consumers to get all the credit. Automakers are trying to move more electric power lines across America

How does the used-EV credit work?

Buyers can get a tax credit of up to $4,000 – or 30 percent of the vehicle’s value, whichever is less – for the purchase. EVs are at least two years old. But a used EV should cost less than $25,000 — a tall order given the starting prices for most EVs on the market. A search on Autotrader.com shows that the Chevy Bolt, Nissan Leaf and other affordable used EVs are listed at $26,000 or more for models starting in 2019.

On the other hand, utility EVs don’t need to be made in North America or meet battery supply requirements. This means, for example, that a 2022 Kia EV6 that is not eligible for the new-car credit because it is made in South Korea may qualify for a used-car credit if its value falls below $25,000.

“The real impact is that these tax credits will have a big impact in the 2026-to-2032 period – a few years in the future – as the car owners install and increase volumes,” said Chris Harto , a senior policy analyst for Consumer. Magazine report.

Why is the government offering these loans?

The credits are part of about $370 billion in clean energy spending — the largest U.S. budget to fight climate change — that was signed into law in August by President Joe Biden. EVs now make up about 5 percent of US new-vehicle sales; Biden has set a goal of 50 percent by 2030.

READ MORE: How to slow global warming with electric cars and other transport, according to the IPCC

EV sales are on the rise, especially as California and other states move to clean gas vehicles. The rise of low-cost Tesla models, such as the Chevy Equinox, with an expected price of about $ 30,000, is expected to expand the EV in middle-class families. S&P Global Mobility expects the EV share of vehicle sales to reach 8 percent next year, 15 percent in 2025 and 37 percent in 2030.

Can the requirements be refined to allow more EVs?

That is not clear. Some U.S. partners are frustrated with North American manufacturing requirements that disqualify EVs made in Europe or South Korea.

Those are the things that keep Hyundai and Kia out of favor, at least in the short term. They plan to build new EV and battery plants in Georgia, but they won’t open until 2025. European Union countries are afraid they could move their factories to the US.

READ MORE: What does the EV revolution mean for Detroit?

The Ministry of Finance said that it will provide information at the end of the year on the “expected direction” of the use of stones and minerals. Relaxing the rules to address the concerns of US partners will allow more EVs. But it also risks increasing America’s reliance on foreign supply chains.

Are there any restrictions on filling stations?

If you install a EV charger at home, can get credit. The new law revives federal tax credits that expire in 2021; it provides 30 percent of the cost of equipment and installation, up to $1,000. It adds a requirement that the cargo be in a low-lying or non-urban location. Businesses that install new EV chargers in those areas can get tax credits of up to 30 percent — up to $100,000 in value.

Residential EV charging costs can range from $200 to $1,000; installation can add several hundred dollars.

So should I buy now or wait?

It’s a personal choice.

If you are tired c transportation costs of gasoline and you’re considering an EV, you might want to go ahead. Buying a qualified EV in January or February can give you a full $7,500 tax break before additional requirements take effect in March. Additional state funding may also be available.

But if you’re on the fence, there’s no rush. Consumers who rush to buy now, when there are few affordable EVs available, may face price pressures. In a few years, the technology will improve, and more EVs will be eligible for full approvals.

Krisher reports from Detroit. Associated Press reporter Fatima Hussein contributed to this report.

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