President Biden’s signing of the Inflation Reduction Act is changing the landscape for Americans interested in buying an electric vehicle. The law replaces a previous tax break for EVs with a new set of credits, although that depends on where a car is assembled. Some new and used electric cars may be getting more affordable for consumers thanks to new EV Tax Credit, but details in the fine print are causing confusion about which new vehicles might qualify for immediate savings.
As part of a broad new legislative package—the Inflation Reduction Act—that addresses climate change, healthcare, and taxes, there is a new tax credit of up to $4,000 on used electric cars and revised tax credits of up to $7,500 on certain new EVs. (See the list of 2022 and 2023 models that qualify.)
But due to numerous new rules about where new EVs must be built and their batteries sourced, automakers argue that too few vehicles qualify, and EV advocates are concerned that the requirements may make it difficult for consumers to find a vehicle that qualifies for the credits. In the meantime, many shoppers who are in the market for an EV right now are waiting for more details to be finalized so they can find out which vehicles are eligible for a credit, and how much that credit could be.
“If you’re interested in an EV or a plug-in hybrid and it qualifies for a tax credit today, don’t wait, because it might not qualify next year. But if you’re considering a used EV, it might be worth waiting,” says Jake Fisher, senior director of Consumer Reports’ Auto Test Center.
A requirement that vehicles be made in North America in order to qualify for a tax credit went into effect today as soon as President Biden signed the law, while some other rules don’t apply until after regulations are finalized.
Among other provisions, the new bill:
- Offers a new EV tax credit of up to $4,000 on used EVs put into service after Dec. 31, 2023.
- Takes away the 200,000 vehicle cap on tax credits that made EVs and plug-in hybrids from Tesla, GM, and Toyota ineligible.
- Does away with today’s tax credits for pricey EVs—such as the Hummer EV, Lucid Air, and Tesla Model S and Model X.
- Eliminates tax credits for vehicles not assembled in North America, including the BMW i4, Hyundai Ioniq 5, Kia EV6, and Toyota bZ4X.
The bill also immediately restricts the full tax credit on new EVs to vehicles with battery minerals sourced from countries that the U.S. has a free trade agreement with or recycled in North America, and with battery components sourced from North America.
Until now, buyers of electric cars and plug-in hybrids could get up to a $7,500 federal tax credit as long as the manufacturer hasn’t sold more than 200,000 qualifying vehicles. Once an automaker reached that point, the credit began to phase out—which is why Tesla and GM vehicles have not qualified for a federal tax credit for several years. Toyota recently reached this sales milestone and will see its tax credits ratchet down, as well.
Ultimately, the new rules will transition EV manufacturing away from China and toward North America, says Smith, but that shift could take time. Manufacturers are already making major investments in building batteries in the U.S., but supplying those factories with raw materials from North America could remain a problem, especially considering China’s dominance in mining. “Generally, it’s going to be tough to create the processing here and really tough to create the mining here,” he tells CR.
EV Tax Credit Details in the Inflation Reduction Act
- New electric and fuel-cell vehicles will get a tax credit up to $7,500. Some plug-in hybrid vehicles will also continue to qualify.
- Only vehicles that cost below a certain amount will qualify. For SUVs, pickup trucks, and vans, the threshold is $80,000. For sedans, hatchbacks, wagons, and other vehicles, the credit cuts off at $55,000. (Read more about affordable EVs.)
- There will be no limit on the number of vehicles an automaker can sell that are eligible for the credit.
- Unlike in prior years, the exact amount of the new tax credit will depend on a complex set of calculations based on where the vehicles are assembled and where the materials that make up their batteries are sourced. These requirements get stricter each year through 2026. The bill calls for proposed regulations on the specifics of these requirements by the end of December, which will likely be finalized some time in 2023.
- Only vehicles assembled in North America will be eligible for a tax credit.
- The exclusion of vehicles with components from “foreign entities of concern,” including Russia and China, will go into effect Dec. 31, 2023.
- Starting in 2024, dealerships will be able to offer the value of a tax credit up front to consumers. This may simplify the process for car buyers.
- Car buyers must meet certain income guidelines. Households with an adjusted gross income up to $300,000 will still qualify for the credit, while heads of household must be below $225,000 and individual filers will qualify only with income below $150,000.
- For the first time, buyers of used EVs will get a tax credit: either $4,000 or 30 percent of the sale price of the vehicle—whichever is lower—but only if they buy a car from a dealership.
- The income threshold is lower for used EV buyers: $150,000 for joint filers, $112,500 for a head of household, or $75,000 for an individual.
- Bidirectional EV chargers—ones that can also power your house using the energy stored in your car’s battery—are now eligible for tax incentives.
How You Can Take Advantage of the Inflation Reduction Act
CR explains how buying a heat pump for your home could get you thousands of dollars in federal tax credits and state rebates. Plus, you might be eligible for a rebate when you buy an electric range, cooktop, or wall oven.
Which Cars Might Qualify for the New EV Tax Credit?
Depending on where their batteries are manufactured, only cars with a final assembly point in North America will qualify for the tax incentive. In addition, there are new caps on how much vehicles can cost: For SUVs, pickup trucks, and vans, the threshold is $80,000. For sedans, hatchbacks, wagons, and other vehicles, the credit cuts off at $55,000. And vehicles will still have to meet both of those aforementioned battery manufacturing targets to qualify for the full tax credit.
| Model Year | Vehicle | Note |
| 2022 | Audi Q5 | PHEV model only |
| 2022 | BMW 3-series Plug-in | 330e |
| 2022 | BMW X5 | xDrive45e |
| 2022 | Chevrolet Bolt EUV | Manufacturer sales cap met |
| 2022 | Chevrolet Bolt EV | Manufacturer sales cap met |
| 2022 | Chrysler Pacifica PHEV | Pacifica Hybrid (PHEV) only |
| 2022 | Ford Escape PHEV | PHEV model only |
| 2022 | Ford F Series | F-150 Lightning only |
| 2022 | Ford Mustang MACH E | |
| 2022 | Ford Transit Van | E-Transit only |
| 2022 | GMC Hummer Pickup | Manufacturer sales cap met |
| 2022 | GMC Hummer SUV | Manufacturer sales cap met |
| 2022 | Jeep Grand Cherokee PHEV | PHEV model only |
| 2022 | Jeep Wrangler PHEV | 4xe (PHEV) only |
| 2022 | Lincoln Aviator PHEV | Plug-In Hybrid model only |
| 2022 | Lincoln Corsair Plug-in | Plug-In Hybrid model only |
| 2022 | Lucid Air | Reserve here |
| 2022 | Nissan Leaf | |
| 2022 | Rivian EDV | Fleet-only |
| 2022 | Rivian R1S | Reserve here |
| 2022 | Rivian R1T | Reserve here |
| 2022 | Tesla Model 3 | Manufacturer sales cap met |
| 2022 | Tesla Model S | Manufacturer sales cap met |
| 2022 | Tesla Model X | Manufacturer sales cap met |
| 2022 | Tesla Model Y | Manufacturer sales cap met |
| 2022 | Volvo S60 | T8 Recharge (PHEV) only |
|
2023 models that likely qualify |
||
| 2023 | BMW 3-series Plug-In | 330e |
| 2023 | Bolt EV | Manufacturer sales cap met |
| 2023 | Cadillac Lyriq | Manufacturer sales cap met |
| 2023 | Mercedes EQS | |
| 2023 | Nissan Leaf | |
Although we don’t know which vehicles will meet the battery portion of the tax credit, these are the current and upcoming models made in North America with versions that cost less than the bill requires:
- Cadillac Lyriq (only if it is classified as an SUV)
- Chevrolet Blazer EV
- Chevrolet Bolt
- Chevrolet Bolt EUV
- Chevrolet Silverado EV (with certain options and trim levels)
- Ford F-150 Lightning (with certain options and trim levels)
- Ford Mustang Mach-E
- Nissan Leaf
- Rivian R1S (with certain options and trim levels)
- Rivian R1T (with certain options and trim levels)
- Tesla Cybertruck (with certain options and trim levels)
- Tesla Model 3 (with certain options and trim levels)
- Tesla Model Y (only if it is classified as an SUV, and only with certain options and trim levels)
- Volkswagen ID.4 (only 2023+ models made in Tennessee)
Of those vehicles, it remains to be seen which ones would meet the battery requirements. For example, the Chevrolet Bolt and its batteries are assembled in Michigan, so its qualification for a tax credit would be determined by which countries those battery minerals are sourced from. Other vehicles have cells that might be manufactured at multiple factories in different countries. “Once you have cells coming from two different places, how do you figure out the qualification?” asked Smith.
Because their prices are above $55,000, the Cadillac Lyriq and Tesla Model Y would qualify only if they are classified as SUVs and not station wagons, and if buyers don’t choose options that bring the price over $80,000.
For some vehicles, the credit might only be partial. “I’m thinking that maybe the Tesla Model 3 and Y would qualify for half of the $7,500 credit under the battery components requirement but not likely the minerals requirement,” says Loren McDonald of EV Adoption, an electric vehicle research, analysis, and marketing firm.
Which Cars Definitely Won’t Qualify for the New EV Tax Credit?
These current and upcoming EVs (and two fuel-cell vehicles) are not made in North America and therefore won’t qualify for a tax credit, although that might change in the future if their assembly location changes.
- Audi E-Tron
- Fisker Ocean
- Genesis GV60
- Hyundai Ioniq 5
- Hyundai Ioniq 6
- Hyundai Kona Electric
- Hyundai Nexo
- Jaguar I-Pace
- Kia EV6
- Kia Niro Electric
- Lexus RZ
- Mazda MX-30
- Mercedes-Benz EQB
- Nissan Ariya
- Polestar 2
- Subaru Solterra
- Toyota bZ4x
- Toyota Mirai
- Volkswagen ID.4 (only certain models)
- Volvo C40
In addition, regardless of where they are assembled, these vehicles are too expensive and will not qualify for any tax credit:
- Audi E-Tron GT
- BMW i4
- BMW i7
- BMW iX
- Chevrolet Silverado EV (with certain options and trim levels)
- Ford F-150 Lightning (with certain options and trim levels)
- Genesis G80 Electric
- GMC Hummer EV
- Lucid Air
- Mercedes-Benz EQE
- Mercedes-Benz EQS
- Porsche Taycan
- Rivian R1T (with certain options and trim levels)
- Tesla Cybertruck (with certain options and trim levels)
- Tesla Model S
- Tesla Model X
What if I bought a car that’s delayed?
Motorists who bought cars before August 16 but that were delayed after that date — say, because of supply-chain issues — don’t need to worry about sourcing requirements, according to the Internal Revenue Service. As long as the buyer made a binding commitment to buy a car, such as by putting down a deposit of 5% of the car’s price or more, the IRS will consider the purchase made before the new law went into effect.
Starting next year, the list of which cars qualify for credits will change substantially to follow the IRA’s requirements for the origin of battery manufacture. Consumers should be on the lookout for a revised list before the end of the year, the IRS said.
Consumers should also prepare to be patient, since the vehicle credits may be confusing for the next few years, according to Jesse Jenkins, a Princeton University professor who specializes in clean energy.
“There will be a shifting list of vehicle models that qualify,” Jenkins said on the Volts podcast this week. “Some may be on it one year and then fall off it another year, when the sourcing changes.”
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