There’s a loophole that’s become apparent in the new Electric Vehicle (EV) requirements under the Inflation Reduction Act, or IRA. Since the new act became law, a mere dozen EVs and Plug-in Hybrids Vehicles (PHEVs) qualify for the full clean vehicle tax credit. Which ones do? More on that in moment.
That said, you might find that your potential new ride, say a Nissan Leaf, Kia EV6 or Jaguar I-Pace, doesn’t quality for the tax credit at all. That doesn’t mean you can’t get the discount, however. The majority of conventional leases would be eligible for a $7,500 commercial credit that is exempt from the myriad benchmarks needed to be eligible for the $7,500 consumer new-vehicle credit.
This was done at the behest of international automakers, who wanted some access to the fed’s EV gravy train. This means that, in the short term, a majority of new EVs going forward will be leased, which should stoke the used EV market as well going forward.
This could also lead to automakers sweetening any lease deals, making them far more tempting than a purchase. Of course, the $7,500 is dealer dependent: they have to factor in the tax credit they receive into the lease, something that’s not guaranteed.
But it does allow wealthy buyers the same tax incentive given to mainstream buyers. But it also allows owners of large commercial fleets — who the leasing provision was really aimed at — with leased vehicles to take advantage of the same incentives.
Finding an eligible new EV
Of course, while leasing can reduce your cost of ownership, so too will getting the full $7,500 IRA federal tax credit. Under the law, used electric vehicles are eligible for a $4,000 federal tax credit and new cars are eligible for as much as $7,500 in tax credits. All EVs, PHEVs and hydrogen fuel-cell vehicles (FCV), will qualify if they meet the restrictions.
But there are caveats.
Due to the law’s more stringent electric vehicle requirements, fewer new cars, trucks, vans and pickups are eligible for the full $7,500 tax credit. To get the credit, at least 50% of a vehicle’s battery components must be made or manufactured in North America in order to be eligible for the first $3,750. For the battery to qualify for the second $3,750, at least 40% of its key minerals must have been mined or processed in the United States, in a nation with which the United States has a free-trade agreement. It can also be manufactured from recycled materials in North America.
There are also modified adjusted gross income caps: $300,000 for married couples filing jointly, $225,000 for heads of households and $150,000 for all other filers.
To claim the credit, you must file IRS Form 8936 with your income tax return.
Here are the cars that the IRS says receive the full $7,500 federal tax credit
- 2023 Cadillac Lyriq
- 2023 Chevrolet Bolt
- 2023 Chevrolet Bolt EUV
- 2024 Chevrolet Blazer
- 2024 Chevrolet Equinox
- 2024 Chevrolet Silverado EV
- 2023 Chrysler Pacifica PHEV
- 2023 Ford F-150 Lightning
- 2023 Lincoln Aviator Grand Touring PHEV
- 2023 Tesla Model 3 Performance
- 2023 Tesla Model Y All-Wheel Drive, Long-Range and Performance
- 2023 Volkswagen ID.4
Other cars are eligible for a $3,750 federal tax credit:
- 2023 Ford Escape PHEV
- 2023 Ford E-Transit
- 2023 Ford Mustang Mach-E
- 2023 Jeep Grand Cherokee 4xe PHEV
- 2023 Jeep Wrangler 4xe PHEV
- 2023 Lincoln Corsair Grand Touring PHEV
- 2023 Rivian R1S
- 2023 Rivian R1T
- 2023 Tesla Model 3 Rear-Wheel Drive
Finding an eligible used EV
Buying used will certainly save you money by buying a used EV for the same reasons that you can save money buying a conventionally powered vehicle: the first owner took the hit on depreciation. And the feds will still give you a federal tax credit if you buy a used EV.
While it’s only $4,000, it’s more than some new EVs receive. And EVs not only require less maintenance than a gas-powered car, the major battery components are warrantied for as much as 10 years. That said, older EVs had lower range when new, anywhere from 75 to 115 miles, and will now have even less thanks to their older batteries. And given its unknown previous life, how long the battery will last remain a mystery.
Some of this fear can be alleviated by buying a certified pre-owned EV, which will come with a manufacturer’s warranty.
But if you’re willing to live with the caveats, you can save money versus buying a new EV. To qualify, the vehicle must cost $25,000 or less and not purchased for resale. It has to be at least two years old, have a gross vehicle weight rating of less than 14,000 pounds and have a battery capacity of least 7 kilowatt hours. You can’t be the original owner, and not have claimed another used clean vehicle credit in the 3 years prior to the purchase date. Finally, there are income caps: $150,000 for married filing jointly or a surviving spouse, $112,500 for heads of households, $75,000 for all other filers.
Automakers incentives
And while recent news of Elon Musk cutting the price of Tesla Model 3 and Model Y vehicles, other automakers do offer incentives on new EVS. Ford is offering a $1,000 customer incentive or 0%-9.9% financing on the 2023 F-150 Lightning and Mustang Mach-E. General Motors is offering 6.6%-7.1% financing on the GMC Hummer EV, as well as $1,000-$5,000 on Chevrolet Bolt and Bolt EUVs. Even the Lyriq can be had with 3.4%-7.9% financing. And there are many more, so it’s not as if incentives.
Be sure to check out your favorite automaker’s website for full details.