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By 2024, it will be easier for many consumers to claim the $7,500 tax credit for new electric vehicles, but it may be more difficult for others. These opposing dynamics resulted from federal policies taking effect simultaneously.
A policy that comes into effect on January 1 will allow car dealers to offer their Electric vehicle tax breaks At the point of sale – in the form of cash, price discount or down payment. Currently, consumers must wait until tax season to file their annual return to receive the financial benefits.
Under the new mechanism, consumers will basically “transfer“They provide federal tax credits to car dealers. In turn, dealers pass the tax credits on to consumers. This will apply to new cars and used electric vehicles, with the credits up to $7,500 or $4,000 each.
Additionally, consumers were eligible for tax relief regardless of their tax liability, but that is not the case now. Currently, because tax credits are non-refundable, buyers are only eligible for any tax credits if they have a federal tax liability—a policy that tends to dilute benefits for households with relatively low incomes or exclude them entirely Some families.
Starting in 2024, these new policies will make it easier to apply for and obtain tax credits while making electric vehicles more affordable for consumers, said Ingrid Malmgren, policy director at Plug In America .
Why applying for the $7,500 electric vehicle tax credit may be harder
At the same time, consumers looking for a tax cut may have fewer cars to choose from next year.
The Inflation Lowering Act signed into law by President Biden in 2022 phases in certain measures Designed to enhance the manufacturing requirements of the domestic electric vehicle supply chain.
In the short term, however, as automakers struggle to comply with the rules, they have disqualified some electric vehicles from receiving full or partial tax credits. (These rules only apply to new electric vehicle purchases, not used models or leasing.)
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By 2024, battery components will consist of “foreign entities of concern“China, Iran, North Korea and Russia – are not eligible for tax credits,” Malmgren explained.
“Right now, China is a big supplier,” Malmgren said.
As a result, “fewer cars are expected to be available on January 1,” she said. “Sadly, they are more affordable.”
The U.S. Department of Energy has compiled a list new and used Electric vehicles are eligible for full or partial tax credits.
There are some things to note
For consumers looking to get point-of-sale discounts, there are few things to consider.
For one, not all dealers are guaranteed to participate, although most are expected to. Experts say consumers should ask dealers before buying.
Buyers must also file an income tax return for the year they transfer the EV tax credit to the dealer.
In addition, the EV tax credit imposes certain eligibility requirements on cars and consumers. One is that the rules for new electric vehicles and used electric vehicles are different based on household income.
For example, married couples filing a joint tax return will only be eligible for the new electric vehicle tax credit in 2024 if their annual income does not exceed $300,000 in 2023 or 2024. For used electric vehicles, the income threshold for married couples is $150,000.
But car dealers don’t analyze consumers’ income to determine whether they qualify. Buyers must self-certify their eligibility, and making a mistake could mean refunding the full value of the credit to the IRS at tax time.
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