The Inflation Reduction Act, which President Joe Biden signed in August 2022, allows for tax credits of up to $7,500 to be given to persons who purchase electric vehicles. However, American buyers must ensure that the EVs they buy adhere to the new Final Assembly Requirement, which mandates that the vehicle’s final assembly take place in North America.
If the final assembly of an EV’s components takes place in the United States, Mexico, or Canada, the buyer may be entitled for tax credits of up to $7,500. The National Highway Traffic Safety Administration’s (NHTSA) sVIN Decoder website allows users to look up a vehicle’s vehicle identification number (VIN) and learn where it was manufactured, according to the IRS.
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Consumers who purchased and took possession of a new, eligible EV after August 16, 2022, are subject to the Final Assembly Requirement. Consumers who purchased an EV prior to August 16 but did not take possession of it until on or after that date are eligible to file for tax credits under the prior rule, according to the IRS (and will not need to adhere to the Final Assembly Requirement).
The number of completely electric and plug-in hybrid vehicles that are eligible for federal tax incentives was reduced by the rule. From roughly 30 completely electric vehicles and 42 plug-in hybrid vehicles before the new regulations, only about eight electric vehicles and ten plug-in hybrid vehicles are now qualified under the Final Assembly Requirement, according to Yahoo Finance.
Depending on the battery capacity of the car, buyers of electric vehicles may also be eligible for federal tax credits up to $7,500 in addition to the Final Assembly Requirement. Local and state incentives may also be available.
The EV tax credits are no longer refundable as a result of the inflation reduction act, according to CNBC. To receive the maximum amount of EV tax credits, a consumer must have a tax burden of more than $7,500. For instance, a taxpayer who owes $4,000 in federal taxes for 2022 but qualifies for up to $7,500 in tax credits may only claim $4,000, and would not get a tax refund for the other $3,500.
In 2023, new regulations governing the EV tax credits will go into effect, bringing the total number of qualified fully electric vehicles eligible for incentives to 11. According to Bloomberg Law, some used electric cars under $25,000 will qualify for tax credits of up to $4,000 or 30% of the purchase price, whichever is less.
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A new rule requiring at least 50% of the value of the EV battery components to be manufactured or assembled in North America will go into effect the following year. A second rule will require at least 40% of the crucial battery materials to be extracted or processed in the United States or in one of the 20 nations with which the United States has free trade agreements. For cars acquired after January 1, 2023, both requirements must be satisfied in order to qualify for the maximum $7,500 tax credit; each requirement equals 50% of the $7,500 tax credit.
In 2023, a provision that previously capped tax incentives on models that sold more than 200,000 units per carmaker will be abolished, but pricing for eligible electric vehicles will be subject to caps. The maximum price for electric vehicles will be $55,000, while the maximum price for trucks and SUVs would be $80,000.
The Department of Energy has given a list of eligible EVs, and consumers may view the state incentives here. To find out specific manufacturing sites, use the VIN Decoder website and instructions.
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