It can be difficult to get a $7,500 EV tax credit. Below are the solutions

The Inflation Reduction Act, signed into law by President Joe Biden in August, sets different manufacturing requirements for new hybrid and all-electric cars to be able to qualify for the full $7,500 tax credit.

As of August 17, for example, final assembly of the car had to be made in North America.

the last two requirements – which applies to the sourcing of car battery components and critical metals – will begin on April 18 and will continue over a few years, According to the Treasury.

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The lawmakers’ goal is to encourage automakers to build batteries with local supply chains rather than relying on countries like China for essential parts.

In the short term, it is expected to be a Current list of cars which qualify for a $7,500 credit, the number will decrease, at least until manufacturers can meet the new battery rules.

The IRS will update the list of eligible electric vehicles on April 17. At that time, cars that currently qualify for the tax credit may be associated with a smaller tax credit or none at all, perhaps only temporarily.

The Inflation Reduction Act also created a tax credit for consumers who purchase electric or fuel cell vehicles.

The used car tax credit, which takes effect in 2023, is $4,000 or 30% of the sale price, whichever is less.

The Pre-Owned Clean Vehicle Credit carries none of the manufacturing rules associated with new EVs – representing a potential alternative solution for consumers who are in the market for an electric vehicle and want to maximize their tax savings.

If the new car you want does not qualify [for the $7,500 credit]you may be able to save some money [by buying a used EV] “And get a tax credit,” said Ingrid Malmgren, director of policy at Plug-in America.

She said used car credit applies to a wide range of cars. Consumers can consult IRS list To verify eligible used vehicles.

Here are some of the key criteria for cars and consumers to qualify for credit:

• The vehicle must be purchased from an authorized dealer.
• The vehicle model must be at least two years old.
• The sale price must be $25,000 or less.
• It is only available to individuals and not to companies.
• Buyers don’t qualify for the credit if their annual income exceeds certain thresholds: $75,000 for individuals, $112,500 for heads of household, and $150,000 for married couples filing a joint tax return. Buyers rate the income for the year they acquired the car or the previous year, whichever is lower. (Income is measured as “adjusted adjusted gross income.” You can consult This FAQ to determine how the AIG score is calculated.)

Those income limits are “significantly lower” than the limit that applies to a $7,500 tax credit for new vehicles, though, said Katherine Brix, managing director of KPMG’s Energy & Tax Credit Advisory Services Group. The income thresholds associated with new cars are twice the thresholds for used cars.

Both new and used credits are non-refundable, which means that car buyers need to be tax liable to get any value from the tax credits.

“If I don’t have a $4,000 tax liability, what is the tax credit worth to me? Not much,” Brix said of the used car credit.

However, starting in 2024, a new mechanism for new and used cars will kick in where buyers can transfer their tax credits to dealers — possibly allowing dealers to convert the tax credit into a point-of-sale rebate for consumers rather than a benefit that experts said can only be claimed on filing the return. annual tax. The IRS plans to issue additional guidance on this transfer clause.

Alternatively, consumers also appear willing to take a tax credit of up to $7,500 for new electric passenger vehicle rentals.

Malmgren said this tax advantage does not include the manufacturing requirements associated with purchasing new cars. This means that more vehicles are likely to qualify at the outset — making this savings somewhat of a loophole for consumers who want to rent a car.

“There are very few restrictions that apply,” Malmgren said.

This Inflation Reduction Act created the Qualified Clean Commercial Vehicle Credit for business owners. Malmgren said automakers have subsidiaries that lease or finance arms that buy electric cars for commercial purposes and then lease the cars to consumers — at which point they can pass on the associated tax break.

Most manufacturers clearly indicate that they will pass on the full amount [to consumers]Malmgren said of the $7,500. But you have to check. For not all of them carry it.”