If you’re planning to switch to an electric vehicle, you may feel confused about electric vehicle tax credit rules. Do all electric vehicles qualify for a tax credit, and how can you know whether your chosen EV model is eligible for maximum credit?
Here’s an important update: The US Treasury Department has announced that more electric vehicles will now qualify for the maximum tax credit of $7,500. This is great news for those with an eye on one of the higher-priced electric vehicles by Tesla, GM, or Ford.
What Is the Electric Vehicle Tax Credit?
The EV tax credit is part of the Inflation Reduction Act and the broad climate policy that aims to encourage more American drivers to opt for EVs in an effort to reduce harmful air pollution.
However, until now, qualifying for the maximum $7,500 credit has been fraught with complications. Not all EVs and batteries are eligible for full tax credits. There is also a sticker price cap: $55,000 for new EVs, wagons, and sedans; and $80,000 for SUVs, pickup trucks, and vans. Electric vehicles with a high price tag weren’t eligible for tax credits, which excluded some high-end models like the Cadillac LYRIQ.
Electric Vehicle Tax Credit Updates
The disqualification of higher-priced electric vehicles from tax credits has brought on protests from EV industry leaders, like Elon Musk of Tesla, who bluntly described the previous policy as “messed up.” As a result of lobbying and meetings between Musk and top figures in the Biden administration, the Treasury Department announced that it is broadening the range of electric vehicles that will qualify for a tax credit of up to $7,500.
According to the Treasury Department’s announcement, the updated policies will also help consumers determine which models are eligible for electric vehicle tax credit. Consumer-oriented fuel economy standards, instead of a more complex EPA formula, will determine vehicle ranking. Crossover vehicles with similar features will now be eligible for more uniform tax credits.
Some New EV Models That Newly Qualify for Tax Credits
The Cadillac LYRIQ, the five-seat Model Y by Tesla, the ID.4 by Volkswagen, and the Ford Mustang Mach-E are some of the EV models that will now be eligible for tax credits up to a price cap of $80,000 (compared to the previous cap of $55,000).
In other words, these models will now count as SUVs, whereas previously, they didn’t. In the past, this has resulted in some difficult-to-understand rules. For example, the seven-seater Model Y counted as an SUV and was eligible for credits, whereas the five-seat variation wasn’t.
Praise for the New Policy
Unsurprisingly, automotive industry leaders praised the Treasury Department’s decision, which will encourage more American motorists to choose electric vehicles. General Motors issued a statement commending the Treasury Department for its alignment with Fuel Economy labeling and for providing a clear policy to manufacturers, dealers, and consumers.
Of course, as a consumer, you should do your market research and determine whether your vehicle of choice qualifies for credits. The IRS website offers a full list of clean vehicles eligible for tax credits.
Levy & Associates: Helping You Keep Up With Recent Tax Regulations
Tax rules are complex and constantly changing. We at Levy & Associates can help you stay on top of all applicable tax requirements and regulations, from understanding electric vehicle tax credits to resolving tax audits, liens, penalties, and other tax issues.
Call us at 800-TAX-LEVY to learn more about our tax services and the deductions you or your business may qualify to receive.