Even those not ready to buy an all-electric or plug-in hybrid vehicle yet may still take advantage of the Used EV Tax Credit. This revised incentive offers stricter income caps and price caps, as well as new requirements regarding where battery minerals and components originate from.
Starting in 2024, buyers can transfer their federal EV credits directly to their dealer at point-of-sale and make use of them immediately instead of waiting until tax season to take advantage of them. This gives buyers greater convenience than waiting to file taxes before transferring credits back.
Eligibility
The federal used electric car tax credit can provide up to $7,500 of value. To take advantage of it, buyers need to submit IRS Form 8936 with their tax return; there is detailed guidance available online from the IRS regarding filing this form. In addition to complying with standard rules of tax filing procedures and requirements, this credit also entails some restrictions and requirements that must be fulfilled in order to claim it.
To qualify for the used electric car tax credit, buyers’ income must fall below certain limits. Married couples filing jointly must earn less than $300,000. Individual filers or heads of household should not earn over $150,000 to be eligible. Credit will be reduced for those exceeding this threshold.
Eligibility for the new EV tax credit is also limited by final assembly requirements. The original goal was to increase domestic production and reduce foreign imports; however, once manufacturers reached 200,000 electric cars they no longer qualified for credits; though now this cap has been removed the IRS still requires that final assembly for qualifying clean vehicles takes place in North America.
This change has had an impactful result for several automakers, such as Tesla, Ford, Chevrolet and GM. Only select vehicles qualify for credits – mostly SUVs and pickup trucks from top five American manufacturers that meet both price and battery size criteria.
While EV purchase credits are restricted to new buyers, the commercial credit can be applied for by any business that leases vehicles – this means leasing companies could pass along its value directly to customers at lower cost for electric cars and trucks.
Buyers should remember that electric vehicle tax credits expire two years after being claimed. Therefore, it’s crucial to plan ahead and evaluate whether an EV fits with their lifestyle before making their purchase decision. To see which vehicles qualify for tax credits in their area of the United Kingdom visit this list of qualified cars by visiting this link.
Requirements
If you are considering purchasing a used electric vehicle, there are a few considerations that must be met in order to be eligible for federal government incentives. First and foremost is knowing that credit will only apply when purchasing an eligible car meeting certain price and assembly standards, with income also having an effect.
To qualify for the full $7,500 EV tax credit, you must purchase an eligible car or truck that has an MSRP below $25,000 from an authorized dealer, while also meeting certain income criteria – single filers should have modified adjusted gross income under $150,000; married filing jointly filers should have under $300,000.
These requirements were established under the Inflation Reduction Act of 2022 to foster domestic EV production and set minimum requirements for where batteries, critical minerals and parts should come from.
The credit is divided into two components; $3,750 will be granted if at least 50 percent of a battery’s cells were manufactured or assembled within North America, and at least 40 percent of its critical minerals come from either the United States or an agreement partner of free trade agreement partner; otherwise it is reduced back down to $3,750.
Beginning in 2024, buyers may choose to have their dealership apply the credit directly at point-of-sale in order to save money immediately and avoid waiting for their tax refund. This could enable them to save both time and money upfront.
Tesla, Ford, GM, and Stellantis are currently eligible to offer electric vehicle (EVs) with the full $7,500 credit; Kia and Hyundai do not qualify as they do not manufacture their EVs within the U.S.
Even so, these five companies and others are creating many new EVs at present. Tesla already has a plant in China where they plan to manufacture both their next-gen Model 3 and all-new Model Y vehicles; thus we should soon see more of these vehicles on US roads.
Taxes
Even though most used car sales occur through dealerships, millions more vehicles change hands every year between private parties and could qualify for federal EV tax credits. But unlike new car purchases, the process for claiming this credit differs slightly: buyers must first demonstrate eligibility by filing IRS Form 8936 and verifying their income level including deductions such as retirement contributions before any dealer will honor the credit; an experienced tax professional can assist with this step if needed.
Since the previous system, the EV credit has become more complex, with income limits for buyers eligible for full $7,500 credits, price caps and rules regarding where EVs are assembled and from where their batteries originate. Due to these regulations, only 21 new vehicles from seven automakers qualify for this year’s full credit; therefore Consumer Reports recommends investing in one soon in order to take full advantage of it before more stringent requirements come into force next year.
As automakers strive to meet the new credit requirements, there are still options available for buyers looking for an electric vehicle but don’t plan to wait for more models to hit the market. One such example would be purchasing a 2021 Hyundai Ioniq with an EPA-rated range of 150 miles for under $25,000 that will qualify for this tax credit.
Another excellent option is the 2022 Chevy Bolt, with its 258-mile EPA-rated range and starting price of about $24,000. Unfortunately, however, most dealers do not currently stock this model.
Finally, both the 2024 Volkswagen Golf EV and Kia Soul EV may qualify for full EV credit. Although these cars aren’t readily available yet at most dealers, they should become available shortly.
As leasing electric vehicles won’t qualify for tax credits, other advantages exist for those opting to lease instead of purchase them. Some lease agreements offer extras like free maintenance or reduced down payments while faster return of loans and lower interest rates may also be included as benefits of choosing leasing over buying.
Financing
The expanded electric vehicle tax credit should help boost sales of EVs, but new reporting requirements could create administrative headaches at the IRS. Because “dealer” in this instance refers to any person licensed to sell vehicles in the US, car dealerships will need to keep tabs on who purchases and transfers used EVs between buyers, and transferees – and who receives their federal EV credit in form of a discount at point-of-sale rather than waiting until tax season to claim it.
Used EVs may help address the limited supply currently on the market, yet may reduce financing availability for such vehicles. Many consumers may find it hard to afford an $40,000 electric car even with its generous tax credit of $7,500.
Consumer Reports’ study discovered that leasing is one way around restrictions on new EVs; most tax credits available for leasing over purchasing. This is because purchases of new cars must meet stringent domestic manufacturing and materials sourcing rules which have eliminated all but 21 plug-in vehicles from eligibility.
Used cars that are leased don’t need to come from qualified manufacturers because the credit is granted directly to the leasing company. This enables most restrictions regarding price, owner income and assembly to be bypassed – creating an advantageous loophole that should last years.
At present, the best way to take advantage of the EV credit is to locate a pre-owned EV dealer and discuss financing options with your lender. Once in your driveway, an EV can help reduce gasoline use while simultaneously decreasing pollution levels – two great incentives to drive an electric vehicle! Don’t forget to register it and claim its federal credits!