Your new electric car may land you a $7,500 tax credit now that the Inflation Reduction Act — designed to fight climate change and inflation — has been signed into law by President Biden. But the new law carries certain conditions. The big change for new vehicles purchased after Aug. 16, 2022: Final assembly must take place in North America.
The federal government has outlined a list of eligible electric vehicles and provides an online portal for consumers to check exactly where their vehicle was assembled. The electric-vehicle tax credit is one of an array of clean energy tax incentives geared at consumers and businesses within the law. Other portions of the bill include rebates and tax credits for energy efficient household systems, including solar panels, heat pumps and electric water heaters.
“The big change for new electric vehicles in the Inflation Reduction Act: Final assembly must take place in North America.”
The Inflation Reduction Act allows for tax credits of up to $4,000 for pre-owned electric vehicles. But they don’t kick in until next year and it will be two years before car buyers can apply the credit immediately at the point of sale, Treasury Department guidance says. The department adds: “Consumers that purchase a qualifying electric vehicle can continue to claim the electric vehicle tax credit on their annual tax filing. Starting in 2024, the Inflation Reduction Act establishes a mechanism that will allow car buyers to transfer the credit to dealers at the point of sale so that it can directly reduce the purchase price.” More importantly, the U.S. auto industry still has to catch up with the manufacturing requirements so more cars can even qualify for the credit, according to at least one trade group. Another challenge for consumers: Electric vehicles don’t come cheap. Buying a car is a big decision, especially when inflation is running at a four-decade high and interest rates are rising. The average transaction price for a new electric vehicle in July was $66,645, according to Kelley Blue Book. To put that in context: The average price for all new vehicles last month was a record-setting $48,182, the Cox Automotive brand said. Here’s what to know now about putting the tax credit to use:Income caps, sticker price limits The electric vehicle tax credit pays up to $7,500 on new electric cars, but has been a part of the federal tax code for years. Here’s what’s changed: The Inflation Reduction Act added new requirements about who is eligible for the tax savings. Eligible individuals can make $150,000 annually or less, while married couples filing jointly c …