Tax credit for EVs could be cut in half under new standards: Roadshow

Q: I always enjoy your column and was happy to see EV issues featured again in the April 4 column. Allen Ventura joins many others who are confused about the complicated new $7,500 EV tax credit. You were right to refer him to the IRS guidelines. The list of eligible EVs is going to change dramatically on April 18 when strict battery sourcing requirements go into effect. Most EV models will not qualify, and many that do will only receive a $3,750 credit.

Peter Douglas

A: The Inflation Reduction Act (IRA), which included legislation to deal with climate change, reworked an existing electric vehicle purchase tax credit. A primary objective of offering the credit is to make electric vehicles more appealing by making them less expensive.

The reworked EV tax credit is also designed to move more production into the U.S.

In the short term, the conflict is rising between the different goals of the EV tax credit. That’s because the IRA includes the requirement that a certain percentage of battery minerals and components be sourced from North America or a U.S. trade partner.

Historically, the EV battery supply chain has been dominated by China. Companies are working hard to build mines and plants in the U.S., but those efforts will take years to be fully implemented.

On April 18, the Internal Revenue Service will release an updated list of vehicles which are eligible for the tax credit.

Many vehicles currently eligible for the full $7,500 credit will not meet the new battery mineral and component sourcing standards, and the credit for these vehicles could be cut in half or unavailable.

As changes are made to the tax credit, the federal government is providing other incentives, including a growing charging infrastructure, loans, and other tax credits.

In addition to the battery requirement, there are also a maximum vehicle cost and a buyer income cap that factor into determining how much credit buyers receive. Only U.S.-built SUVs under $80,000 and cars under $55,000 qualify. The income cap is based on buyers’ adjusted gross income, which may not exceed $300,000 for married couples filing jointly, $225,000 for heads of households, and $150,000 for all other filers.