A Car Buyer’s Guide to the New EV Tax Credit
The new rules are complicated. Here’s how to make sense of them if you’re shopping for an electric vehicle.
The Department of Treasury published new rules Friday that will determine which new electric vehicles, purchased for personal use, will qualify for a $7,500 tax credit. They will go into effect on April 18 and last for the next decade or so.
These new tax credit rules are complicated. Anyone in the EV market probably has a few questions, including: Should I buy that new car now, or should I wait? Which cars qualify for the current tax credit, and which ones will earn the new one?
Below is Heatmap’s guide to the new tax credit, why it matters, and what to keep in mind as you go EV shopping.
Who is affected by these new rules?
If you’re an ordinary American buying a brand-new EV to run errands and pick up the kids, these new rules apply to you. They will determine which cars you can get a federally funded discount on.
If you’re not buying a new car for personal use — because you’re getting it for your business, say, or because you’re buying a used EV — these new rules don’t apply to you. But you may qualify for other new subsidies. We get into those below.
And even if you are in that first category, you may discover it’s much cheaper to lease a new EV instead of buying it outright. We get into why below, too.
Why are these new rules important?
They completely change how the United States approaches the EV industry.
During the Bush and Obama administrations, the U.S. was focused mostly on getting automakers to begin to experiment with EVs. So it discounted the first 200,000 or so electric vehicles that each manufacturer sold by up to $7,500. If a company had cumulatively sold more than that number over time, as Tesla and General Motors eventually did, then the discount expired. By 2022, that had led to a peculiar situation where foreign automakers, such as Hyundai, could use the subsidy, while some of the largest American automakers couldn’t.
Now, U.S. policy is focused on two goals: (1) building up a domestic supply chain for EVs and (2) getting more EVs on the road. So the tax break is completely uncapped — any automaker can use it as many times as possible if they meet the criteria.
But many new requirements apply: Only cars that undergo final assembly in North America will qualify for any of the tax credit. Then, cars with a battery that was more than 50% made in North America will qualify for a $3,750 subsidy. And cars where at least 40% of the “critical minerals” used come from the U.S. or a country with whom we have a free-trade agreement will qualify for another $3,750 subsidy.
Those percentage-based requirements will ramp up over time. By 2029, for instance, 100% of a car’s battery and battery components must be made in North America.
Why is this change happening now?
Because Congress said so. The Inflation Reduction Act, which Democratic majorities in the House and Senate passed last year, mandated this change to the EV tax credit as part of its broad expansion of American climate policy.
Will more EVs or fewer EVs qualify for a subsidy under those new rules?
Initially, fewer EVs will receive a subsidy under the new rules, Biden officials say. On a press call with reporters, a senior Treasury official argued that more cars will eventually qualify under the new rules than qualified under the old ones.
Which EVs will qualify under the new rules?
Over twenty models will receive some or all of the credit, although some will not go on sale until later this year. Here they are, along with the amount of the tax credit that they qualify for:
• BMW X5 xDrive50e PHEV ($3,500)
• Cadillac Lyriq ($7,500)
• Chevrolet Blazer EV ($7,500)
• Chevrolet Bolt ($7,500)
• Chevrolet Bolt EUV ($7,500)
• Chevrolet Equinox EV ($7,500)
• Chevrolet Silverado ($7,500)
• Chrysler Pacifica PHEV ($7,500)
• Ford E-Transit ($3,750)
• Ford Escape Plug-in Hybrid ($3,750)
• Ford F-150 Lightning, Standard & Extended Range ($7,500)
• Ford Mustang Mach E, Standard & Extended Range ($3,750)
• Jeep Wrangler PHEV 4xe ($3,750)
• Jeep Grand Cherokee PHEV 4xe ($3,750)
• Lincoln Corsair Grand Touring ($3,750)
• Lincoln Aviator Grand Touring ($7,500)
• Rivian R1S ($3,750)
• Rivian R1T ($3,750)
• Tesla Model 3 Standard Range RWD ($7,500)
• Tesla Model 3 Performance ($7,500)
• Tesla Model 3 Long Range AWD ($3,500)
• Tesla Model Y AWD, Long-Range AWD, and Performance ($7,500)
• Volkswagen ID.4 Standard, S, Pro, Pro S, Pro Plus, AWD Pro, AWD Pro S, and AWD Pro Plus ($7,500)
Are there any EVs that definitely do not qualify for either tax credit?
Yes. A few examples: The Hummer EV, which costs more than $110,000 a piece, won’t qualify for either the new or old tax credit — it’s too expensive. And the Polestar 2 won’t qualify because it’s assembled in China.
Are any other changes coming for the EV tax credit?
Yes. Starting next year, the U.S. will prevent cars that receive too much manufacturing input from a “foreign entity of concern” — that is, China — from qualifying for anyof the tax credit. The Treasury Department hasn’t said exactly how it will enforce that rule yet, but given China’s existing dominance of EV supply chains, it could knock even more cars out of consideration.
In 2024, the government will also allow buyers to refund their EV tax credit at the dealership. That means buyers will be able to get up to a $7,500 discount when they sign for their car. Today, buyers have to wait to file their taxes to get that refund.
Are there any income caps on the $7,500 tax credit?
Yes. A married couple must have an adjusted gross income of less than $300,000 a year, and a single filer must have an AGI of less than $150,000 a year, to qualify for any aspect of the subsidy. A head-of-household must have an income of less than $225,000 a year.
Lots of rules! Is there a price limit on the EVs that can qualify for this new subsidy?
Yes. Under the proposed rule, cars must have an MSRP below $55,000 to qualify for the credit. Vans, pickup trucks, and SUVs must have an MSRP below $80,000.
If my household makes more than that, do I have any other options?
Yes. The Inflation Reduction Act also included a new $7,500 tax credit for EVs used for any commercial purpose. The Treasury Department is expected to interpret that provision to cover leasing, but it hasn’t announced the guidelines for that rule yet, so we don’t know for sure.
But the provision will probably tilt new EV drivers toward leasing their car rather than buying it outright, because the dealer should — emphasis on should — offer relative discounts on leasing vehicles as compared to buying them.
There’s no way I can afford a new EV. Does the IRA contain any subsidies for buying a used EV?
Yes. There’s also a new $4,000 tax credit for buying a used EV that costs $25,000 or less. It went into effect on January 1, 2023, so you can go ahead and use it today.
But note that it has even stricter income limits: Married couples can only take advantage of it if they make $150,000 or less, and other filers if they make $75,000 or less.
Out of the curiosity, what models qualified for the $7,500 credit before April 18?
Here’s the list of cars that qualified for the $7,500 tax credit before April 18, 2023, according to the Department of Energy.
• Audi Q5 TFSI e Quattro (PHEV)
• BMW 330e *
• BMW X5 xDrive45e**
• Cadillac Lyriq
• Chevrolet Bolt
• Chevrolet Bolt EUV
• Chevrolet Silverado EV
• Chrysler Pacifica PHEV
• Ford E-Transit
• Ford Escape Plug-In Hybrid *
• Ford F-150 Lightning
• Ford Mustang Mach-E
• Genesis Electrified GV70
• Jeep Grand Cherokee 4xe
• Jeep Wrangler 4xe
• Lincoln Aviator Grand Touring *
• Lincoln Corsair Grand Touring *
• Nissan Leaf
• Nissan Leaf (S, SL, SV, and Plus models)
• Rivian R1S
• Rivian R1T
• Tesla Model 3 Long Range
• Tesla Model 3 Performance
• Tesla Model 3 RWD
• Tesla Model Y All-Wheel Drive
• Tesla Model Y Long Range
• Tesla Model Y Performance
• Volkswagen ID.4
• Volkswagen ID.4 AWD, Pro, and S models
• Volvo S60 PHEV *
• Volvo S60 Extended Range
• Volvo S60 T8 Recharge (Extended Range)
* These cars don’t qualify for the full $7,500 subsidy, although they all receive at least a $5,400 tax credit.
** Only some BMW X5 xDrive45e vehicles qualify — it depends where the car was made. Check the VIN or ask the dealership to confirm it was made in North America before buying.
This story was originally published on March 31, 2023. It was last updated on April 19 at 2:01 p.m. ET.
Get the best of Heatmap delivered to your inbox:
