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Many Americans Don't Like How the 2023 EV Tax Credit Works and Want It Changed

The clean vehicle credit (better known as the EV tax credit) has been updated through the Inflation Reduction Act last year. Now, in 2023, it can apply to new and previously-owned hybrids, fuel-cell (hydrogen-powered), and battery-electric vehicles. Still, some Americans are upset about it and demand a fix. Here’s why and what they want.
2023 Ford Mustang Mach-E 11 photos
Photo: Ford
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Obtaining the clean vehicle credit in 2023 is still a tad bit confusing even though we are nearing the second half of January. That’s even more true, considering there is now another component added – the $4,000 maximum tax credit for previously-owned clean vehicles that cost $25,000 or less.

But what you need to remember about the updated EV tax credit is that you may receive the following:

  • $2,500 for a vehicle that has at least a 5-kWh battery which is the base amount for the new clean vehicle tax credit;
  • $417 because the car has a battery of at least 5 kWh;
  • an additional $417 for every 1-kWh of added battery capacity that goes over the minimum threshold of 5 kWh up to a maximum of $5,000.
Since the new provisions state that a qualifying vehicle needs at least a 7-kWh battery, this means the minimum amount of applicable tax credit is $3,751.

Considering you earn as much as the new rules allow, problems arise when vehicle eligibility comes into play. Vans, SUVs, and pickup trucks qualify if they have a manufacturer-suggested retail price (MSRP) that does not exceed $80,000, while other vehicles must cost $55,000 or less. On top of this, the “clean vehicles” must also respect the final assembly in North America requirement.

If you managed to tick all the boxes, you may still find yourself disappointed because the Internal Revenue Service (IRS) may not consider your vehicle of choice an SUV. For example, the five-seater Model Y does not qualify for the maximum EV tax credit because its ride height is too low. Specifically, it lacks 1.1 inches of extra ground clearance. Hence, it is included in the “other vehicles” category and it must cost $55,000 tops to be eligible.

However, all the variations of the Model Y with three-row seating do qualify and are considered clean SUVs. These vehicles can have an MSRP of $80,000, while the five-seater version cannot.

There are also other confusing situations with how the IRS determines which clean vehicle is an SUV. For example, the battery-electric Ford Mustang Mach-E does not qualify for the $80,000 MSRP limit because it has a gross vehicle weight rating (GVWR) of 5,930 lb (2,690 kg) – 70 lb (32 kg) short of the 6,000 lb (2,722 kg) needed.

But let's assume you intend to buy the Mustang Mach-E Premium model and you want the entire tax credit of $7,500. Well, you would have to settle for the rear-wheel-drive version and accept the standard range battery as your only option. In this configuration, the MSRP is $54,975. To add the extended range battery and all-wheel-drive would incur an extra cost of $11,300 that cancels the EV tax credit eligibility.

The new rules set through the IRA have even fostered the appearance of a new bill called “The Affordable EVs for America Act.” But there are little to no chances for this document to see the pen of the President.

Many Americans, however, still believe something can be done. That is why they started an online petition. At the time of writing, it accrued over 54,400 signatures. The supporters argue that incentives are being applied in an erroneous matter. This, in their opinion, hurts both consumers and automakers.

The signatories underline that allowing plug-in hybrids like the Jeep Grand Cherokee 4xe to get the maximum value of the clean vehicle credit is another issue the new provisions have created. This vehicle still uses an internal combustion engine which burns fossil fuels, while something like a five-seater Model Y does not because it’s purely electric. They think a battery-electric vehicle is more deserving of an incentive than a plug-in hybrid one.

The petitioners ask Congress to remove the incentives for hybrid vehicles and allow them only for EVs such as battery-electrics (BEVs) and fuel-cells (FCEVs). They also want the new MSRP limits to be applied correctly for SUVs and non-SUVs. This, according to the signatories, would be the ideal fix.

But the people who signed the petition would also be content with only having the latter done.

Unfortunately, the U.S. Congress does not work like the UK’s Parliament. Over the pond, the Brits have a dedicated platform for addressing issues collectively and need only 100,000 signatures to have a petition considered for debate in the Legislative. In America, the First Amendment guarantees everyone’s right to petition the government. However, online petitions have a very low rate of success.

Finally, remember that if you buy an eligible vehicle in 2023 and you meet all the qualifying criteria, the $7,500 tax credit will apply when you file next year, in 2024.
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Editor's note: All figures were correct at the time of writing.

About the author: Florin Amariei
Florin Amariei profile photo

Car shows on TV and his father's Fiat Tempra may have been Florin's early influences, but nowadays he favors different things, like the power of an F-150 Raptor. He'll never be able to ignore the shape of a Ferrari though, especially a yellow one.
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