While the name Inflation Reduction Act may make you think of combatting the rising price of goods and services in the U.S., the legislation is a groundbreaking step for climate change mitigation and adaptation in the country. You may have already heard about the $7,500 electric vehicle incentives to push Americans away from fossil fuel powered vehicles, as well as some confusing restrictions.
We’ve rounded up 8 things to know about the EV tax incentives put into place by the Inflation Reduction Act, which replaced all other electric vehicle tax incentives when it was signed by President Biden in August.
1. INCENTIVES WILL BE IN PLACE UNTIL 2032
Perhaps you already started looking into purchasing an electric vehicle only to find that there is no inventory or a model that fits your specs. Consumers interested in purchasing the Tesla Model X may need to wait until October of 2023 and those interested in purchasing the Ford Mustang Mach-E may need to wait up to 24 months. Global supply chain issues and production hiccups continue to disrupt the supply of electric vehicles.
Luckily, these incentives will be around until the end of 2032, giving consumers nearly a decade to make the switch to a cleaner fueled vehicle. It also gives time to manufacturers to increase their inventory or begin domestic assembly.
2. MANUFACTURER CAPS WILL BE REPEALED
Under the old incentives, manufacturers were capped at selling 200,000 vehicles before buyer credits were phased out. Thankfully, the IRA will repeal this limitation starting on January 1, 2023 — and vehicles like the Tesla Model 3 and Chevy Bolt will once again qualify.
3. USED VEHICLES NOW QUALIFY
Under the act, consumers may qualify for incentives when purchasing used vehicles – $4,000 or up to 30 percent of the sale price for vehicles under $25K. Unfortunately due to supply chain issues and the rising price of gas, used electric vehicle prices are closer to $40K per vehicle.
Incentives also only apply to vehicles purchased from a dealer and can only be applied to the first purchase of a used vehicle.
4. VEHICLES MUST BE MANUFACTURED IN THE U.S.
Upon the signing of the IRA, final assembly of vehicles must occur within the U.S. in order to qualify for incentives. For consumers with binding contracts placed between 12/31/21 and 8/16/22 ahead of the act coming into place, the incentives will apply. For a list of qualifying vehicles, check out the Department of Energy’s website or you can check by the vehicle identification number (VIN) through the Department of Transportation’s website.
5. INCOME RESTRICTIONS
The act sets personal income limitations for those who qualify for the credit. Taxpayers with modified adjusted gross income less than $150K (single) or $300K (joint) annually are eligible. For used vehicles the limit is set at $75K for single filers and $150k for joint filers.
6. FUEL CELL VEHICLES NOW QUALIFY
For those interested in making the transition to hydrogen fuel cell vehicles, the incentives include $7,500 for fuel cell vehicles. If you want to learn more about the technology and its pros and cons, check out Sustainable America’s blog on the technology.
7. PRICE MUST BE UNDER $80K
Vehicles exceeding a manufacturer’s suggested retail price of $80K (sport utility vehicles, vans, or pickup trucks), or $55K (all other vehicles) are ineligible. This range right now still includes over 30 qualifying vehicles.
8. BATTERY COMPONENTS ARE RESTRICTED
Perhaps the most confusing restriction is around electric vehicle batteries. Starting in January of 2024, EV battery components must not be assembled or manufactured by a “foreign entity of concern”. A “foreign entity of concern” is defined in the Infrastructure Investment and Jobs Act of 2021 as any entity “subject to the jurisdiction or direction of a government of a foreign country that is a covered nation.” Covered nations include China and Russia. Minerals critical for battery production are also included in these restrictions, including lithium, nickel, and cobalt among many others. This limitation is of particular concern considering mining within Russia and Ukraine for these materials.
Put more simply, these future restrictions on battery assembly and mining are meant to incentivize automakers to invest in domestic battery production facilities and create jobs. And partial tax credits will still be awarded in a phased approach through 2029.
CONCLUSION
While many of us feel excited by the future thought of owning an electric vehicle, we must also deal with the short-term disappointment due to the lack of availability of qualifying vehicles. Luckily, the new electric vehicle tax credits will be in place until 2032, giving consumers ample time to act as manufacturers ramp up production. The main message from the U.S. government is that America is going electric and this means domestic jobs to support the manufacturing of automobiles and batteries.
