For $7,500 EV tax credit, you may no longer have to wait until tax time

Consumers no longer have to wait to file their annual tax return to receive a tax break on the purchase of a new electric vehicle.

In early 2024, the federal “new cleaning vehicle“Car dealers can receive tax credits through point-of-sale discounts, worth up to $7,500.

This means participating dealers can immediately offer eligible consumers a discount on the purchase price of an electric vehicle, possibly through a partial payment or down payment on the vehicle or a cash payment to the buyer.

Buyers of used EV models are also eligible for upfront price discounts from dealers. Tax credits for “previously owned clean vehicles” are worth up to $4,000.

Before January, car buyers had to wait until the tax season of the year following purchase to claim these tax credits.

In addition to this delay, waiting until tax season creates an additional financial hurdle for consumers, as their total EV tax credit cannot exceed their annual tax liability because the credit is “non-refundable.”

That means many consumers — especially low-income earners, who tend to have smaller tax bills — won’t qualify for the full $7,500.

Now, participating auto dealers can pass on the full value of the credit regardless of a family’s tax liability, as long as the buyer and vehicle meet other eligibility criteria.

“It has a lot of benefits,” Ingrid Malmgren, policy director at Plug In America, said of the new rule. Plug In America is a nonprofit educational organization.

Consumers can still choose to receive the financial benefit at tax time, rather than as an upfront payment for a tax credit.

More than 70% of consumers have used prepay options through 2024, according to sales reports filed with the IRS on Jan. 31 Comment Lily Batchelder, Assistant Secretary for Tax Policy at the U.S. Department of the Treasury.

U.S. electric vehicle sales hit a record high of 1.2 million units in 2023, a 46.3% increase from 2022 according to Kelley Blue Book.

Kelley Blue Book said consumers paid an average of $50,798 for a new electric vehicle in December, down 17.7% from January 2023. (This cost includes financial incentives.) By comparison, the average transaction price for all new vehicles in December was $48,759.

The Inflation Reduction Act is a landmark law in the United States to combat climate change. Convert the EV tax credit into an upfront discount starting in 2024 by creating a so-called “transfer” provision.

Dealers must pass IRS Energy Credits Online Portal to facilitate these transfers.Ministry of Finance Open Register with dealers and car manufacturers in November.

Not all car dealers have signed up. This means that qualified consumers who want a prepaid EV discount may not be able to get it, depending on the seller.

As of February 6, more than 11,000 dealers were registered on the IRS portal, according to a Treasury official. The official said 74% of them, or more than 8,200, have signed up to advance transferable clean car credits to consumers.

(The officials said the two figures differ for a number of reasons. First, dealers require a minimum 15-day waiting period after registering before they can offer point-of-sale discounts. The IRS also must manually Review case.)

For context, there were 16,839 franchised retail auto dealers in the United States in the first half of 2023, according to National Automobile Dealers Association.

There are also about 60,000 independent car dealers, mainly selling used cars, according to Cox Automotive Company Forecast 2021.

However, not all franchises or independent dealers necessarily sell electric vehicles.

Not all electric vehicles qualify for tax breaks.

Inflation Reduction Act Manufacturing requirements for new electric vehicles limit (temporarily, most likely) the models that qualify for full or partial tax relief. Malmgren said dealers selling substandard models have no incentive yet to sign up for IRS online energy credits.

There are currently 27 new electric vehicle models that can enjoy full or partial tax relief in 2024. according to to the U.S. Department of Energy. They are made by Chevrolet, Chrysler, Ford, Jeep, Lincoln, Rivian, Tesla and Volkswagen.

Malmgren said there is currently no database for consumers to search for car dealers that have signed up to offer point-of-sale discounts on electric vehicles.

“There’s really no way to know unless it’s listed on the dealer’s website or by calling the dealer,” she said.

Malmgren added that consumers can ask the appropriate dealer if it is registered with the IRS to offer point-of-sale tax credits. In other words, they could also ask the dealer if they offer a $7,500 EV tax credit or a transferable EV tax credit upfront, she said.

Electric Vehicle Tax Credit Has some qualification requirements For consumers. For example, household income must be below a certain threshold. The requirements for buying a new electric vehicle and a used one are different.

Buyers are required to sign an affidavit at the car dealership confirming that their annual income does not exceed certain eligibility thresholds. Making a mistake usually requires the consumer to repay the tax deduction to the IRS.

Buyers must file an income tax return for the year they transfer the EV tax credit to the dealer. Malmgren said buyers should make sure to get a copy of the successfully filed seller’s report from the car dealer, which the consumer then files with their tax return.