If you’ve been eying an EV, now may be the time to buy it. Here’s why.
If you’ve got your eyes on an electric vehicle, there may be no better time to buy one than this Christmas.
That’s because between now and Dec. 31, buyers get an EV tax credit of up to $7,500 on the vehicle and the widest selection of models eligible for the full credit.
But starting Jan. 1, the rules change: In 2024, a customer gets an immediate “tax credit” when they buy the vehicle, without having to file tax paperwork. Essentially, it’s a discount.
There’s a catch, however. New rules on battery components and minerals next year could limit the selection of EV models eligible for the $7,500 credit.
That creates a “sweet spot” for selection and savings until Dec. 31, experts say. Plus, with tax season opening soon, you won’t have to wait too long to claim the credit if you file your taxes next month. The IRS usually begins accepting tax returns in late January.
“The icing on the cake is that it’s December – typically a time when both dealerships and automakers are keen to hit their final sales numbers, so they may be more inclined to make a deal,” said Dave Undercoffler, editor-in-chief at car buying and selling platform Autolist.com.
What EVs will be eligible for the full tax credit in 2024?
The list of vehicles eligible for the full $7,500 tax credit becomes “a lot shorter” on Jan 1, Undercoffler said.
Autolist.com said the list includes:
◾ Chevy: Bolt, Blazer, Silverado EV, and Equinox.
◾ Tesla: Model 3 Performance, Model Y Performance, and Model X.
◾ Ford: F-150 Lightning.
◾ Cadillac: Lyriq.
◾ Chrysler: Pacifica PHEV.
But remember, that list is fluid.
“Automakers may change where they source battery components and minerals from,” said Jordan Argiz, principal at Auto Dealerships at BDO USA, which provides audit, tax and advisory services to dealerships. “Additionally, more and more foreign brands are building factories in the U.S. to assemble their vehicles,” which can add to the eligible list.
Why will there be fewer EVs eligible for the full tax credit?
The biggest change affecting the number of EVs eligible for the $7,500 tax credit is the government’s stricter rules around the assembly or manufacturing of battery components and critical minerals.
The final assembly of the new vehicle must occur in North America to qualify. None of the battery’s components can be sourced from a “foreign entity of concern,” which includes China, Russia, North Korea and Iran, according to car platform Edmunds.com.
Once that’s established, the credit’s split in half (worth $3,750 each) between:
◾ Critical battery minerals: At least 50%, up from 40% in 2023, of the critical minerals in the vehicle’s battery must have been either recycled in the U.S. or extracted or processed there or in any country that has a free trade agreement with the U.S.
◾ Battery components: To qualify for the remaining $3,750 credit, at least 60% (up from 50%) of the EV’s battery components must be manufactured or assembled in the U.S. or any country that has a free-trade agreement with the U.S.
Tesla already warned its least expensive Model 3 won’t qualify for the full credit, if purchased after Dec 31 because it can’t meet all those requirements. Reports say Tesla’s Model Y and Model X could also be affected, and Ford’s Mustang MACH E will no longer be eligible for any credit.
Why is the government changing the rules for EV tax credits?
“The primary reason for the credit was to get people to switch to electric vehicles,” said Eric Scaringe, principal at certified public accounting firm UHY. “Now, the government wants to make sure EV parts are sourced within the U.S., and specifically deter you from certain countries.”
That all falls into President Joe Biden’s plan to bring manufacturing back to America and create jobs, make the nation more independent and help stop climate change.
Why should I purchase my EV by Dec. 31?
As of now, you’ll have a wider selection of EVs to choose from that will still net you the full $7,500 tax credit.
You won’t get the credit immediately at the point of sale like you would if you wait until 2024, but you shouldn’t have to wait too long to claim it since tax season traditionally opens in late January, said Alison Flores, manager at The Tax Institute at H&R Block, an arm of tax preparer H&R Block. The earlier you file your 2023 taxes, the quicker you can receive the credit.
Other important things about the EV tax credit
The EV tax credit is based on the date placed in service, usually the day you take delivery of the car, not the order date or the vehicle model year. “In some cases, vehicles must be ordered and may be delivered in a different tax year than the order,” Flores said. “If taxpayer or vehicle eligibility changed, it’s possible the taxpayer may qualify for a lower credit or no credit.”
Also, remember there are income cap limits to qualify for the tax credit. For 2023, your modified adjusted gross income either in the year you take delivery of the vehicle or the year before can’t exceed:
◾ $300,000 for married couples filing jointly.
◾ $225,000 for heads of households.
◾ $150,000 for all other filers.
Losing appeal?Why are Americans less interested in owning an EV? Cost and charging still play a part.
Can you still get the $7,500 EV tax credit on a lease in 2024?
Yes, because of a loophole in the EV tax credit, that won’t go away next year.
“It’s important to remember that the changes to vehicle eligibility only matter if you’re buying that EV,” Undercoffler said. “People who are leasing an EV can still maximize the rebate on a large number of EVs in 2024.”
Here’s how that works: Cars bought by leasing companies are considered commercial vehicles and all battery-powered “commercial” vehicles qualify for the $7,500 credit under a separate, less restrictive program than the one for consumer purchases. Leasing companies can then pass on those savings to lessees by offering discounted monthly payments.
Besides the savings, leasing may offer other advantages.
“These are cars whose technology is rapidly improving,” Undercoffler said. “And because leasing isn’t the long-term commitment that buying can be, you’re less likely to be stuck with an obsolete EV a few years down the road.”
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
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