CNN –
The Internal Revenue Service has once again updated the rules for electric vehicle tax credits starting the first day of 2024, bringing with it some good and bad news.
The bad news is that fewer vehicles are now eligible for federal tax credits and even fewer for the maximum tax credit of $7,500.
But there is also good news. Many electric and plug-in hybrid models are still eligible for at least a portion of the full tax credit. Additionally, consumers can now have the tax credit applied to the purchase price of the vehicle at the time of purchase instead of having to wait until they file their taxes. And, as before, if you lease the vehicle instead of buying it, you can still benefit from the tax credit on vehicles that wouldn't otherwise qualify for the tax credit.
Many states and even localities also offer their own incentives for electric vehicles and for installing home electric vehicle chargers. These IRS changes do not affect these incentives.
Even when electric vehicles are heavily discounted, as most are currently, tax credits are in some cases the only way to obtain them incentive for an electric vehicle, said Ronald Montoya, consumer advice editor at Edmunds.com. Tesla, for example, doesn't negotiate sticker price.
“If you look at Tesla, one of the most popular electric vehicles, that's not the case [give] There are no rebates, so the tax credit is very important for Tesla buyers,” he said. “So it just depends on the vehicle. But I think overall they are a great incentive for people.”
The new rules relate to where vehicle parts, particularly batteries and battery components, were manufactured. In particular, if these parts were manufactured in China, the tax credit will be reduced or even eliminated.
Many automakers are currently building electric vehicle battery factories in the United States. However, even if a particular model doesn't qualify for the full tax credit today, it could in the coming months or years as automakers change their parts supply chains.
Models still eligible for the full $7,500 electric vehicle tax credit, according to the IRS website, include the Ford F-150 Lightning pickup, the Chrysler Pacifica plug-in hybrid minivan and various versions the Tesla Model 3, Model Y, and Model X.
However, according to the IRS website, some electric vehicles and plug-in hybrids that were eligible for tax credits last year are no longer eligible. However, the list is likely to change as more automakers complete application processes and change their supply chains.
For example, according to the website, the Nissan Leaf was eligible for a $3,750 tax credit at the end of last year, but as of this week that is no longer the case, the website says. Likewise, Ford Mustang Mach-E owners who took delivery of their SUV last year could receive a $3,750 tax credit, but that model is not currently listed as eligible new Year. The Volkswagen ID.4 was eligible for the full $7,500 tax credit through the end of 2023. However, it is not currently listed as eligible for a purchase tax credit.
Volkswagen spokesman Mark Gillies said the German automaker was still in the process of submitting all necessary documents. The company is “optimistic” that all ID.4s from the 2023 and 2024 model years will ultimately be eligible.
Nissan said it is working with parts suppliers to meet the new requirements so the Leaf can be re-registered in the future.
For some electric and plug-in hybrid vehicles, the question of whether and to what extent a tax credit can be claimed depends on the specific individual vehicle and its respective parts content. For this reason, there is an option on the IRS website to enter the unique vehicle identification number (VIN) for the vehicle a customer is purchasing or considering.
Whether these new tax credit rules or last year's rules apply depends on when the vehicle was “put into service,” to use IRS terminology. This means that the new tax rules will apply for 2024 even if you signed the paperwork to purchase a vehicle in 2023 but don't take delivery of the vehicle until this year. Therefore, you may not receive the tax credit you could have received if you had the vehicle in your driveway before January 1st. However, if you had taken delivery of the vehicle in 2023, the tax credit rules in place at that time would still apply.
However, if you lease, you can claim the tax credit even on vehicles that were never eligible. Because if you lease, different – and more lax – tax rules apply. However, the tax credit does not go to you, but to the leasing company. However, in many cases it is passed on to customers as a “leasing incentive,” resulting in lower monthly payments.
Leasing is an excellent idea if you're thinking about an electric vehicle anyway, Montoya said. On the one hand, electric vehicle technology is still changing rapidly, so someone who buys an electric vehicle today will want to upgrade to a new car with a longer range or faster charging in a few years anyway. In addition, leasing helps to reduce the monthly payments, which are currently very high when purchasing a vehicle due to high interest rates.