Improved EV Credits Makes the Switch Even Easier for US Drivers – CleanTechnica

Sign up for daily news updates from CleanTechnica on email. Or follow us on Google News!

---

To avoid the worst impacts of climate change we need to switch from gasoline and diesel to electric vehicles powered by clean electricity as soon as possible. While driving an electric vehicle (EV) can save drivers on fuel and maintenance, the upfront cost of electric cars and trucks can be a barrier to choosing an EV. The federal tax credits in the Inflation Reduction Act (IRA) are important tools to accelerate the transition and make EVs accessible to more car buyers by reducing the initial cost of both new and used EVs. The Department of the Treasury and Internal Revenue Service (IRS) recently finalized rules on these credits, including on the transfer of the new and used EV credits and mineral and battery component sourcing requirements applicable to the credit for new EVs. These rules provide greater clarity for automakers, dealers and consumers.

Success of point-of-sale incentives

One of the major changes for the Clean Vehicle Tax Credit this year was the new ability to transfer the credit at the time of sale to a dealer, reducing the upfront cost of the EV. Previously, the EV tax credit could only be claimed on a personal tax return filed in the next calendar year, potentially up to 15 months after the purchase of the EV. Making the tax credit transferable means that the price reduction happens at the time of purchase, potentially reducing the down payment required or the amount financed (or both).

Transferring the credit to a dealer also means that all eligible buyers can access the full value of the tax credit for which the vehicle is eligible (usually $3,750 or $7,500, depending on the sourcing of critical materials and battery components). If the credit is taken on a personal income tax return, the credit is non-refundable. This means that a buyer whose total tax liability is less than the EV credit will essentially forfeit a portion of the credit. However, if the credit is transferred to a dealer, the buyer could get the full value of the credit for which the vehicle is eligible.

This transfer is not just for new EVs. Qualified used EV purchases can also use the transfer provision at time of purchase, for up to $4,000 off, allowing buyers of less expensive used cars to also pick electricity over gasoline. A major online used car retailer has now included the credit as part of the checkout process, making it more convenient for buyers to access the credit.

There has been a high level of interest in the transferred EV tax credit, with over 150,000 credits transferred already this year, saving EV buyers over $1 billion in upfront costs. Over 90 percent of the new EV credits have used the transfer provision (not including leases) and about 80 percent of the used credits have taken advantage of the point-of-sale credit.

Knowing the clean vehicle credit guidelines are important

The EV credit can be an important factor in making EVs more affordable for car buyers, but there are important guidelines that shoppers should be aware of.

First, buyers can consult the eligible model list on fueleconomy.gov to determine if the model they are interested in purchasing may be eligible. The eligibility for the credit depends on a number of factors, including the manufacturer’s suggested retail price of the vehicle and sourcing requirements for critical minerals and battery components in the vehicle’s battery.  Models need to be eligible at the time they are delivered, regardless of whether the credit is transferred or taken on a personal return.

Not all EVs are on the list, but more are being added as manufacturers shift production to the US. Current models on the list include the new Chevy Equinox EV, with a base model slated to be available later this year for $35,000 before the tax credit.

In addition to the EV being eligible, the purchaser also needs to qualify for the credit by having income lower than the limits established in the IRA. Buyers can use their adjusted gross income from the year the EV is delivered or the previous year (whichever is lower) to account for situations where a buyer doesn’t know if their current year income will be under the cap.

One other requirement is that the dealer needs to provide a “time-of-sale” report to the buyer that shows that the vehicle is eligible and that the dealer has registered the sale with the IRS.  In addition, dealers must be registered with the IRS in order to transfer the credit at the time of sale.

The used EV credit also has important limitations. The full requirements can be found on the IRS website, but key points include a maximum sales price of $25,000, a lower income cap, and the used car must be purchased from a registered dealer. The transaction also needs to be the first time the car has been re-sold since August 2022 to a qualified buyer.

Note that this is a summary of the tax credit provisions and buyers should consult the IRS guidelines and get guidance from a tax professional on their eligibility to take a credit or transfer it to a dealer.

Tax credits help accelerate the transition to EVs

Transportation is the largest sector for emissions, and passenger cars, trucks, and SUVs are the majority of transportation emissions, so there is no way to slow down climate change without a fundamental shift from petroleum to clean electricity to power our vehicles.

While the number of EVs on the road is increasing, we need this transition to happen as quickly as possible to reduce climate-changing emissions and improve air quality. These federal EV incentives are important to help more drivers make the switch to EVs.

By David Reichmuth, Senior Engineer, Clean Transportation Program, Union of Concerned Scientists, The Equation