What Do Tax Rules Tell Us When You’re Going to Buy an Electric Vehicle? A Commentary on Harto’s Discontent with the IRS Tax Rules
The tax rules are designed to encourage car manufacturers to make all of their electric vehicles in the United States, especially if the US has trade agreements with other countries. They are designed so tax credits don’t go to wealthy Americans buying expensive luxury vehicles. The latest announcement is likely to be a good thing for consumers.
In the first months of the year, that could create a buying opportunity, but the downside is that it just adds to confusion around what is already a confusing set of rules.
Chris Harto is a policy analyst with Consumer Reports. “It seems like things just seem to get more confusing each time they say something.”
Harto explained that it shuffles the deck as to who is eligible and then the deck will get shuffled again when guidance comes out in March. It makes a lot of a mess for consumers and dealers.
There was no flipping allowed. The end user is the person who buys the vehicle. If you resell the vehicle just to get the credit, you can not claim it.
Andrew Koblenz, the vice president for legal and regulatory affairs at the National Automobile Dealers Association, said that the best question to ask when buying a vehicle is whether the one they buy qualifies for a tax credit. Some vehicle models are made in more than one factory, so two identical looking electric SUVs on the same dealer lot might not both qualify or might not qualify for the same amount of credit.
So which cars are now eligible? There’s a list on the IRS website but — big, big caveat — just because a vehicle is on the list doesn’t mean it actually qualifies. There are more limitations to learn about.
Uncle Sam wants you to buy an electric vehicle. And he’s willing to throw $7,500 your way to make it happen … if you and the model you want both qualify.
The BMW X5 is powered by the pheV while the AUDI Q5 is powered by a petrol engine. The Escape Plug-In hybrid is powered by Ford F-150, Chevrolet Bolt, EUVCadillac and Nissan Leaf S. The Grand Cherokee 4xeTesla Model 3 rear wheel drive and long rangeTesla Model Y All-Wheel Drive, long range and performance
That may sound generous at first, but electric vehicles cost a lot. Most EVs sell for over 60 grand, according to Jessica Caldwell, the executive director of insights. She says it will be difficult to get a vehicle at these prices.
For instance, the IRS says the Volkswagen ID.4 is a car … unless it has all-wheel drive, in which case it’s an SUV. Lots of vehicles consumers consider SUVs, like Tesla’s Model Y and the plug-in Lincoln Corsair, are counted as cars.
The IRS says the categories are based on the criteria for fuel economy for gas-powered vehicles, but the seemingly arbitrary classifications are causing confusion and frustration.
The IRS website shows which price cap applies to which vehicle. It doesn’t matter if a dealer actually charges more or less than the manufacturer’s price since the price cap is based on the MSRP.
This means some vehicles, like the Kia EV6 and Hyundai Ioniq, are simply not eligible for a purchase credit right now. You could be able to lease them. Read on for more.)
Others, like the Volkswagen ID.4, require some detective work. Some ID.4s were made in Germany and don’t qualify for a credit. If you’re looking at one that was built in the state of Tennessee, it qualifies.
However … as mentioned, the IRS still needs to issue guidance on the sourcing requirements for battery components by March, which has the potential to yet again change which vehicles qualify.
They aren’t required to for now. Until the IRS figures out the rules for meeting those requirements, which will be March at the earliest, the Treasury Department says the restrictions simply don’t apply.
Sen. Joe Manchin, D-W.Va., who added the requirements in order to boost American manufacturing, is very upset about this — but for car buyers, there’s a window of opportunity. Cars that get a credit for being eligible for $7,500, will only get a credit of $3,250 in March.
And the IRS is clear: When it comes to the timing of a purchase, it doesn’t matter when you pay for a vehicle, it matters when you have the vehicle in your possession.
The dealer lot is important. When ordering an electric vehicle, eligibility rules may change before it arrives at your dealership because of the long wait times.
If you want a vehicle by March, Barry suggests you be flexible on features and colors. Don’t change your mind about the model of car you want.
The Electric Car Tax Credit: Getting a Better Price for a Less-Rentible Vehicle and Avoiding a Big Bad Spot
Note that income limit is adjusted gross income, or AGI, not your total income. Contributions to a retirement account reduce taxpayer’s AGI. Also, if you are over the cap in 2023 but were under the cap in 2022 you are still eligible. If you’re interested in talking to a tax advisor, you’ll probably want to talk about the part of this paragraph that relates to your life.
The government knows that nobody really wants to have to calculate their taxes next year in advance in order to figure out if they get a discount on a car or not.
In late December, the IRS clarified that vehicles that are leased to consumers can be eligible for a version of the tax credit that is much, much easier to qualify for. It has no requirement that vehicles be made in the U.S., no price cap for vehicles, and no income caps. Do you want to lease an EV6 from Korea or a six-figure luxury sedan? You should go to town.
The credit goes to the company leasing the vehicle out — not the person driving it — and companies aren’t required to pass the savings on to consumers. The tax credit works like this for years, and companies usually pass on the discount.
Of course, with a lease you have caps on mileage per year, and you’re not paying off a vehicle that you’ll eventually own free and clear. If you plan to upgrade to a newer vehicle anyway you may not mind, but be sure to consider if a lease meets your needs. You need to make sure the discount is passed on to you and read your contract carefully.
Source: https://www.npr.org/2023/01/07/1147209505/electric-car-tax-credit-climate-bill-tesla-volkswagen-ev
Electric Car Tax Credit Credits vs. Volkswagens in Merchants Fleet: Is It Worthwhile You’re Looking?
For a household, the income limit is $150,000 and for a single person, it’s $75,000. That is adjusted gross income, meaning if the individual’s salary is more than that they can still qualify.
The biggest problem may be finding a vehicle that qualifies. There aren’t very many used EV’s on the market right now, and a used transformer is worth more than that.
If your vehicle can use a sedan, you may be in luck. But larger vehicles can be tough to find right now, says Hari Nayar, the VP of Fleet Electrification & Sustainability at Merchants Fleet. You want an electric pickup? Get in line.
“If somebody wants to get a pickup truck,” he says, “the vehicles are not available. Even the vehicles that are available may not have the capability in terms of range or charging infrastructure.”
He suggests that companies that make deliveries may be in the best position to take advantage of the credit for now.
Source: https://www.npr.org/2023/01/07/1147209505/electric-car-tax-credit-climate-bill-tesla-volkswagen-ev
Tax Credits: Where Do They Come From? How Will They Impact Your Knowledge of the Laws in the U.S. Treasury System?
The tax credit might have helped you learn more about it, but there’s a good chance that the rules could change again.