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If Your New Year's Resolution Is To Buy an EV, Here's What You Need To Know

So, you’ve decided to go electric and you’re looking to buy an EV. The New Year may be a good time to shop because several tax incentives kick in at the first of the year that may make your purchase more affordable than it would have been in the last half of 2022.
Tesla Model 3 drifiting on snow 1 photo
Photo: Team O'Neil/Facebook
Last summer’s Inflation Reduction Act included wholesale changes to federal EV tax credits that immediately pulled the $7,500 break from non-North American built EVs like the Hyundai Ioniq and Kia EV6. It also opened the credit again after the first of the year to General Motors and Tesla, which were no longer eligible to offer the spiff after passing a 200,000-unit sales threshold. That sales cap goes away Jan. 1 allowing the companies to again offer the tax credits with a few strings attached that we’ll explain later.

Also new for 2023 is a tax credit of up to $4,000 on used electric vehicles two years old or older that cost no more than $25,000 purchased from a licensed dealer. Again, there are a few catches. In addition to the age and cost limitations, eligibility is extended only to those single tax filers making less than $75,000, up to $150,000 for joint filers or below $112,500 for head of households.

The credit can be applied only once a particular vehicle and is pro-rated at 30 percent of the vehicle’s sale price (i.e. $3,000 on $10,000 car) up to the $4,000 maximum. Like all these tax credits, the buyer must pay the full amount of the transaction and apply for the credit when they next file their taxes. However, starting Jan. 1, 2024, the new law allows the used vehicle tax credit to be applied at the point of sale.

Which brings us back to the revived credits for Tesla and GM. If you’re thinking of buying a Tesla Model 3 or Model Y, the automaker has a $7,500 discount through the end of the year on in-stock models. Smart shoppers will jump on these deals because you get the discount right away without having to wait until you file your 2023 taxes, plus you get 10,000 miles of free Supercharging credits to boot.

By opting for the discount now, higher income individuals will also be able to take advantage of the lower price without worrying about whether they qualify for the federal tax credit, which after the first of the year, will cap eligibility at $150,000 in income for single filers and $300,000 for those who file jointly.

When GM lost the ability to offer the credits, it dramatically reduced the cost of its Chevrolet Bolt and Bolt EUV to make them more competitive with the Nissan LEAF, which is still eligible for the tax break. The standard Bolt hatchback starts at $25,600, undercutting the MSRP of the LEAF S by $2,440. Still, after the tax credit, the LEAF S will net out just over $20,000. But the Bolt also will go 259 miles between charges compared to 149 miles for the base Nissan.

Whether GM sticks to this low pricing after the first of the year on the Bolt is left to be seen. Just prior to the EV tax credits being passed last August, Ford lifted the price of its base F-150 Lightning Pro from $39,900 to $47,000 between the 2022 and 2023 model years. It bumped the price twice again October and December in $4,000 increments. The least expensive F-150 Lightning is now just under $56,000 excluding destination.

High prices in general are also another consideration when shopping for EVs. The new law caps tax credit eligibility for cars at $55,000 and trucks/SUVs at $85,000. As a result, Tesla’s higher priced Model S and Model X are excluded as are vehicles like the GMC Hummer EV and top end Ford F-150 Lightning models.

The bottom line here is that the federal tax credit, which was conceived to promote EV purchases by easing the cost differential between electric and internal combustion vehicles, is changed from its original intent. Rather than promoting overall sales to the public, it has become a tool of public policy to reward manufacturers who build electrics and their battery packs in North America.

An additional provision of the tax bill predicates half of the $7,500 tax credit on where the battery’s raw materials come from and the other half on how much of the battery pack itself is produced in America. For the first half of the credit, at least 40 percent of the minerals like lithium and cobalt must be sourced in North America or by U.S. free trade partners. On the production side, at least half of the pack must be manufactured here. The Treasury Department has promised guidance on which U.S.-produced vehicles meet these criteria by March, which means some EVs nos eligible may be excluded from the tax break. Stay tuned.
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Editor's note: Matt DeLorenzo is the author of “How to Buy an Affordable Electric Car: A Tightwad’s Guide to EV Ownership.”

 

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