The $7,500 Electric Vehicle Tax Credit Is Harder to Get Than You Think

By Lauren Fix, The Car Coach

The government is offering free money for electric vehicle owners. But how ‘free’ is it?

The federal government has been telling Americans that they can earn $7,500 on a new tax credit. The deal comes from the recently enacted The Inflation Reduction Act, where the legislation generated a tax credit for any Americans who buy a new electric vehicle. It’s important to know the facts on EV tax credits and that many vehicles will not be eligible.

How do you know if you are making the right move?

The Inflation Reduction Act declares that eligible EVs must be assembled in North America. Restrictions on the sticker price, buyer income, battery component, and critical mineral sourcing take effect on Jan. 1, 2023. The Act disqualifies automakers such as Hyundai, which do not yet make EVs in the US.

Proposed legislation has been drawn up to push this date farther down the road as the restrictions on critical minerals sourcing and the domestic manufacturing of battery components are an issue for consumers to meet the requirement to earn the tax credit.

The restrictions are significant with the new tax credit, making it much harder to gain the full amount. It is a non-refundable credit, which means EV buyers must hold a federal tax liability to gain any cash on the deal.

If, for example, a taxpayer looking to claim the credit has filed their tax return and owes $4,000 on their tax bill, the full credit won’t be available. Under the EV tax deal, that taxpayer doesn’t earn the full tax credit–only the $4,000 credit, which brings their tax bill to Uncle Sam to $0. The remaining $3,500 could not be claimed based on the tax credit legislation for future years. If you owe more than $7,500 on your federal taxes, you’re in luck, you get the whole credit.

For example, you owe $9,000 in tax, and you purchased an EV that is eligible for a $7,500 tax credit the same year, you’ll have to pay $1,500 in tax for that year instead of the full $9,000. Not a bad deal.

That’s not all. A new EV owner is not eligible for the tax credit on leased qualified vehicles. In this scenario, the vehicle is practically owned by the manufacturer and not by you, thus eliminating the tax credit. This is frustrating as it is misleading to buyers who want to lease.

There is also a price limit on eligible vehicles and an income cap determining who can claim the tax credit.

For single and separate tax filers, the income ceiling is capped at $150,000. For joint filers and surviving spouses, it is limited to $300,000. For household heads, that ceiling is limited to $225,000.

Add these additional EV tax credit restrictions to the list and the price limits and many cars and buyers are eliminated. Price caps are also a factor to qualify for the tax credit. New cars are capped at $55,000 and $80,000 for SUVs or trucks. Vans are not eligible.

Maybe you will consider a used electric vehicle, there are limits here too. In the case of used vehicles that qualify for the tax credit, the cost of the vehicles must be less than $25,000 and should be at least two years old.

The biggest factor for 2022 is the electric vehicle must be made in the USA and assembled in North America to qualify. The rules change for 2023–the battery and its materials must come from North American and this limits you options as well. There are a handful of models that will be eligible.

The $7,500 tax credit was actually easier to earn before the Inflation Reduction Act, as the new rules have reduced the number of electric vehicles that are eligible for the tax credit.

The path to an EV tax credit does exist, as long as drivers abide by The Inflation Reduction Act rule. I suggest you get the paperwork for the claim from the purchase of a new or used electric vehicle. Then submit the paperwork with your tax return at the end of the year. Check with your accountant to make sure you are eligible and then check with the dealer to see if the vehicle you choose is built in the US.

Your best bet is to buy before the end of the year. The rules get stricter in 2023.

There is so much more to discuss on this, put your comments below and let’s start the conversation.

The opinions expressed in posts to the NMA Blog belong to the author and do not necessarily represent the National Motorists Association. The content of the NMA Blog is for informational purposes only and is not intended as legal advice. No representations are made regarding the accuracy of NMA Blog posts or links found within those posts.

Lauren Fix, The Car Coach®, is a nationally recognized automotive expert, analyst, author, and television host.  A trusted car expert, Lauren provides an insider’s perspective on a wide range of automotive topics and aspects, energy, industry, consumer news, and safety issues.   

Lauren is the CEO of Automotive Aspects and the Editor-in-Chief of Car Coach Reports, a global automotive news outlet. She is an automotive contributor to national and local television news shows, including Fox News, Fox Business, CNN International, The Weather Channel, Inside Edition, Local Now News, Community Digital News, and more. Lauren also co-hosts a regular show on with Paul Brian called “His Turn – Her Turn” and hosts regular radio segments on USA Radio – DayBreak. 

Lauren is honored to be inducted into the Women’s Transportation Hall of Fame and a Board Member of the Buffalo Motorcar Museum and Juror / President for the North American Car, Utility & Truck of the Year Awards.  

Check her out on Twitter and Instagram @LaurenFix.

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