Tax credit confusion could lead to EV rush in early

Tax credit confusion could lead to EV rush in early 2023

CNN —

As the new year begins, some popular electric vehicles, notably some models from Tesla and General Motors, could be eligible for $7,500 in tax credits they weren’t eligible for in 2022. However, this authorization may only last a few months.

That’s because Limits on new tax credits enacted in August under the Anti-Inflation Act will not come into effect all at once, the Treasury Department said this week. That means the rules will be temporarily more generous in the first few months of the new year, allowing for higher tax credits for more electric vehicles.

The US Treasury Department, which implements the rules, recently announced that the rules for some of the new restrictions on the tax credits – including where the vehicle’s battery pack will be mounted and where the minerals used in it come from – will be pushed back to at least March 2023 when it announces proposed rules for that part of the requirements. However, according to the wording in the legislation, the mere release of “proposed guidance” on those rules, which the Treasury Department said would take place in March, will immediately trigger the tax credit cuts. However, some of the new rules will come into effect in January as originally planned. That leaves a roughly three-month window in which some vehicles could be eligible for much higher tax credits than they will be eligible for later.

General Motors, For example, has previously said that once the full restrictions go into effect — whenever that happens — its electric vehicles will only qualify for a $3,750 tax deduction. It is expected to be two to three years before GM vehicles can again qualify for the full $7,500 tax credit, the company said. To be eligible for the potentially higher pre-March tax credits, a vehicle must actually be delivered to the customer before then, according to Treasury Department guidance just released. That could make the window even narrower, especially for popular models that customers have been waiting for.

While that could create a buying opportunity in the early months of the year, the downside is that it adds to the confusion surrounding the already confusing regulatory framework — even by the standards of tax regulations.

“I was hoping for more clarity, not less,” said Chris Harto, a senior Policy Analyst at Consumer Reports. “It seems like things get more confusing every time they say something.”

Essentially, the tax rules are intended to encourage automakers to manufacture their electric vehicles and all parts of those vehicles in the United States or in countries with which the United States has trade agreements as much as possible. They’re also designed so tax credits don’t go to wealthy Americans who buy expensive luxury vehicles. Likely is the latest announcement that will temporarily unlock more tax credit money mostly a good thing for consumers.

The unilateral tax credit at the beginning of the year is just one of several potential sources of confusion.

New electric vehicle tax credit rules make Chevrolet Bolt EV and EUV eligible for tax credits in the new year. They were previously ineligible because, despite being built in North America – one of the requirements under the new rules – General Motors, Chevrolet’s parent company, and Tesla had long since sold more than 200,000 plug-in vehicles. That was the limit for a given manufacturer under the outgoing tax credit requirements. However, new rules enacted under the Anti-Inflation Act remove this limit.

However, not every buyer and not every electric vehicle is suitable. In addition to the requirement that the vehicle must be built in North America, there will also be price restrictions, for example. If it is an SUV, van, or pickup truck, the sticker price cannot be more than $80,000 and if it is a car, no more than $55,000.

These price caps are based on the full manufacturer’s suggested retail price (MSRP) or sticker price of the vehicle, including all factory-installed options. If the dealer charges more for the vehicle or there is a rebate or rebate, it doesn’t matter. Eligibility for discount is based on actual MSRP only.

As a result, most Tesla models, including the Model X SUV and Model S sedan and even the Model 3 as currently stated on Tesla’s website are still not eligible for tax credits. And the Mercedes EQS SUV, which is assembled in the United States and is currently eligible for tax credits, according to an IRS website, will no longer be eligible in the new year.

“It shuffles the deck who is eligible, and then the deck gets shuffled again when this guide comes out [in March]’ Harto said. “And it just makes a huge mess for consumers, automakers and dealers.”

No turning allowed either. The person who buys the vehicle must be the end user. If you are only buying the vehicle to immediately sell it on to someone else, you will not be able to claim the credit.

The buyer’s income is also limited. The buyer must not have a “modified adjusted gross income” greater than $150,000 for an individual, $300,000 for a couple filing together, or $225,000 for a single head of household. These restrictions will discourage many luxury electric vehicle buyers from receiving tax credits.

The best thing vehicle buyers can do is ask if the specific vehicle they are purchasing qualifies for a tax credit, said Andrew Koblenz, vice president of legal and regulatory affairs at the National Automobile Dealers Association. Some vehicle models are manufactured at more than one factory, so two identical-looking electric SUVs on the same dealer lot may not both qualify or qualify for the same loan amount.

“It’s a great time for shopping. It’s great that more vehicles are eligible now, but you still need to make sure the one you’re interested in is eligible,” said Koblenz. “You need to ask that question to your retailer and your manufacturer, and you need to make sure you qualify.”