EV Tax Credit/Clean Vehicle Credit 

The Inflation Reduction Act (IRA), which was signed into law on August 16, 2022, created a new “clean vehicle credit” which replaces the previous EV tax credit.  The new $7,500 credit only applies to vehicles with final assembly in North America, and also sets strict new limitations on the origin of critical minerals and components of a vehicle’s battery as well as caps on consumer incomes and vehicle MSRPs.

According to guidance released by the U.S. Treasury Department, effective April 18, 2023, 40% of the minerals in a vehicle’s battery must be mined or processed in North America or a county with whom the U.S. has a free trade agreement, and at least 50% of a vehicle’s battery components must be made or assembled in North America or a country with whom the U.S. has a free trade agreement. 

Consumers must have an adjusted gross income (AGI) of less than $300,000 for joint filers, $225,000 for heads of household, and $150,000 for individuals and vehicle MSRPs cannot exceed $80,000 for trucks, SUVs, and vans, or $55,000 for other vehicles, such as sedans. The law also created a new used vehicle credit of the lesser of $4,000 or 30% of the vehicle price for used EVs not less than two years old with a transaction price of no more than $25,000.  Income limits of $150,000 (Joint), $112,500 (head of household) and $75,000 (single) also apply. Beginning on January 1, 2024, the credit will be available at the point of sale.

The significant new restrictions on eligibility for the clean vehicle credit make it very difficult for both vehicles and consumers to qualify, limiting choice, and potentially damaging the valued relationships between dealers and their customers.