Everything About the Inflation Reduction Act Impact on EV’s

The Inflation Reduction Act of 2022 has had a momentous impact on the advancement of electric vehicles (EVs) in the United States. It stands as one of the most significant legislations to accelerate transportation electrification in the nation’s history. It is a remarkable achievement benefiting consumers and businesses alike. However, while the Act brings about numerous advantages, there are also anticipated challenges on the horizon.

Light-Duty EV Tax Credit:

Extending the light-duty EV tax credit until 2032, with the provision of up to $7,500 per vehicle. That represents a pivotal measure to promote widespread adoption of EVs. Previously, this credit had reached its cap for certain popular automakers like Tesla and General Motors and would have soon expired for others. The Inflation Reduction Act introduces several modifications, including an MSRP cap, income cap, assembly/sourcing requirements. And an option to transfer the credit to dealers at the point of sale, with some of these requirements being phased in over the coming years.

  • A notable immediate provision mandates that a vehicle’s final assembly must occur in North America to qualify for the federal tax credit.
  • As of December 31, 2022, the Act has implemented requirements concerning critical minerals and battery components. Though some might have preferred a more gradual phase-in and broader country inclusion for these materials, the provision seeks to encourage supply chain diversification.
  • Starting in 2023, the MSRP and income caps have been implemented, and beginning in 2024, taxpayers have the option to transfer their tax credit to dealers, allowing them to receive the credit as a rebate during the vehicle purchase.

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USED EV TAX CREDIT:

The Inflation Reduction Act introduces a groundbreaking provision by extending federal tax credits to include used EVs. Buyers of used EVs can now avail themselves of credits, up to $4,000 or 30% of the sales price, depending on the lower amount. To qualify, the vehicle’s sales price must not exceed $25,000, and it must be at least two years old. Additionally, income caps apply to ensure fair and accessible benefits.

Commercial EV Tax Credit:

Commercial EVs are now eligible for federal tax credits, offering up to 30% of the sales price. Additionally, the 45W credit now extends to commercial and tax-exempt entities, making government entities eligible for the credit. The amount ranges from $7,500 for vehicles under 14,000 pounds to $40,000 for all other vehicles. Specific manufacturing and final assembly requirements are in place, and a tool has been created by the U.S. Department of Energy to determine vehicle eligibility.

EV Charging Equipment Tax Credit:

The federal tax credit for charging equipment has been extended through 2032. The credit remains at 30% (up to $1,000) for individual/residential uses, while for commercial uses. It is now 6%, with a maximum credit of $100,000 per unit (increased from $30,000 per property). To qualify, the equipment must be placed in a low-income community or non-urban area.

Electrifying the USPS Fleet:

The legislation allocates $3 billion to electrify the United States Postal Service fleet. That encompassing both vehicles and charging infrastructure, a move that has been strongly advocated for by various stakeholders.

Clean Heavy-Duty Vehicles:

$1 billion has been allocated to support states, municipalities, Indian tribes. Or non-profit school transportation associations in replacing class 6 and 7 heavy-duty vehicles with clean EVs. These funds can cover up to 100% of the costs for vehicles, infrastructure, training, and planning and technical activities to facilitate electrification.

Other Key Provisions:

The Inflation Reduction Act includes various other measures to support EV manufacturing and supply chains. Such as the Diesel Emission Reduction Act program. The Domestic Manufacturing Conversion Grant program, The Advanced Technology Vehicle Manufacturing program. A long-term extension of the Advanced Manufacturing Production Credit, $2.25 billion to reduce air pollution at ports through zero-emission technology deployment. A robust Environmental and Climate Justice Block Grant program, and a strong Greenhouse Gas Reduction Fund.

FREQUENTLY ASKED QUESTIONS

Does this legislation terminate the federal EV tax credit?

No, the previous tax credit had already expired for some popular EV models and was soon expiring for models from a few other automakers. Despite challenges associated with the new tax credit requirements, extending it until 2032 will secure the long-term growth of the U.S. EV market. Additionally, the The Inflation Reduction Act incentives for manufacturing and supply chains will aid automakers in meeting the new criteria.

How do I know if my vehicle is eligible for the federal tax credit?

Effective immediately, vehicles must have their final assembly take place in North America to qualify for the federal tax credit. For the most up-to-date information on eligible vehicles, refer to the Alternative Fuels Data Center. Requirements regarding critical minerals and battery components will not be enforced until the IRS provides guidance, expected to be completed no later than December 31, 2022.

Can I transfer the credit to a dealer if I purchase a vehicle directly from a manufacturer?

The Act does not specify that the seller must be a franchised dealer. It only requires the seller to be licensed to sell vehicles in a state, irrespective of the state where the sale occurs. Hence, taxpayers should be able to transfer the credit to the automaker selling the vehicle, even if it is not a franchised dealer. Further guidance from the IRS on this aspect will offer additional clarity. Alternatively, taxpayers can choose to claim the credit directly on their taxes and not transfer it to the seller.

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