It’s called the Inflation Reduction Act of 2022, but one of its primary goals is to fight carbon emissions by, among other things, giving Americans incentives to buy zero-emission vehicles.
Not everyone’s thrilled with the end result. The auto industry and environmental advocates have groused about the legislation, with car manufacturers calling the incentives package a “missed opportunity” because it will apply only to cars built in North America, among other gripes. Environmentalists say the act could have done more to make clean-running cars affordable and accessible.
But for consumers thinking about going electric — especially in states like California, where EVs and hybrid purchases are already substantially subsidized — the incentives it contains could tilt the math in favor of nabbing that new Tesla Model 3 or Ford F-150 Lightning sooner rather than later.
A big caveat: Because of the restrictions on the types of cars that qualify for the tax credit, don’t expect a great number of Americans to file for the incentives — at least not initially.
Here’s what we know about the expected tax credit and what it means for car buyers.
What incentives does the new legislation offer for EV buyers?
Starting Jan. 1, low- and middle-income Americans would be eligible for a $7,500 tax credit for buying a new clean-air vehicle — a designation that includes hydrogen fuel-cell vehicles as well as battery electrics — and $4,000 for buying a used one. The credits will be limited to single tax filers with an adjusted gross income of $150,000 or less, married couples filing jointly with an income of no more than $300,000, and individuals who file as the head of a household, making $225,000 or less.
Beginning in 2024, car buyers can take the tax credit as a discount at the time of the purchase.
What vehicles will be eligible for the tax credit?
The credit can’t be used for the priciest vehicles — only clean-air cars with a manufacturer-suggested retail price of as much as $55,000, or $80,000 for SUVs and trucks. That disqualifies some of the expensive models such as the Hummer EV and the BMW i4.
To qualify for the full credit, a zero-emission vehicle must be assembled in North America, and its key battery materials must come from the U.S. or a country with a free-trade agreement with the U.S. If the vehicle meets only one of those criteria, the buyer can qualify for half of the credit.
“Unfortunately, the EV tax credit requirements will make most vehicles immediately ineligible for the incentive,” said John Bozzella, president and chief executive of the Alliance for Automotive Innovation, a group that represents dozens of auto manufacturers and technology companies.
Supporters of the legislation argue that the credits will create an incentive for electric vehicle manufacturers to make production changes to meet the criteria.
The legislation doesn’t specify which vehicle brands and models meet the tax-credit eligibility, so it may take a while to sort out the confusion. In the meantime, Consumer Reports has published a list of electric vehicles that were assembled in North America and qualify for at least a portion of credit. Those vehicles include the Chevy Bolt, the Nissan Leaf, the Ford F-150 Lightning and the Tesla Model 3 and Model Y.
The vehicles that don’t qualify for the new tax credit because they are either too pricey or are not assembled in the U.S. include the Hummer EV, the Tesla Model S and Model X, the BMW i4, the Hyundai Ioniq 5, the Kia EV6 and the Toyota bZ4X.
Should you wait or buy an electric vehicle now?
It depends on which vehicle you’re looking to buy. The federal government currently offers a tax credit for new clean-energy vehicles of as much as $7,500, but it is limited to 200,000 rebates per automobile manufacturer. Tesla, General Motors and Toyota have exceeded that cap and no longer qualify for the credit. The Inflation Reduction Act removes the cap and also introduces a $4,000 credit that can be applied to used vehicles.
The existing federal tax credit doesn’t require that the vehicle be assembled in the U.S. to qualify for a credit.
If the vehicle you are thinking of buying won’t qualify for the new tax credit because it’s not assembled in the U.S., “it would behoove you to buy it now” and apply for the current credit, said Bill Magavern, policy director at the Coalition for Clean Air.