You can now have more options when buying a new electric vehicle as more models from Tesla, Ford Motor, General Motors, and Volkswagen are now eligible for the federal tax credit.
The Biden administration passed a historical climate and tax bill in 2022 to create programs to speed the transition to clean energy. The Inflation Reduction Act of 2022 aims to cut the country’s planet-warming carbon emissions by about 40% this decade and toward a net-zero economy by 2050. Among the provision of the bill is providing incentives when buying electric vehicles.
The IRA provides a federal tax credit of up to $7,500 for buying new electric vehicles and $4,000 for buying a used car that runs on battery power. CNBC reported the IRA is limited to eligible EVs, which should be assembled in North America, and the materials of the battery should not come from China.
New Vehicle Classification Definitions
The Department of Treasury has recently revised its vehicle classification definitions, allowing several models from Tesla, Ford Motor, General Motors, and Volkswagen. Last year, the Treasury said it would use Environmental Protection Agency (EPA) CAFÉ standards to determine vehicle eligibility.
The Treasury has announced a revision in the definition in which they will use the “consumer-facing EPA Fuel Economy Labeling standard.” According to Reuters, the reversal can be attributed to Tesla, GM, Ford, and other automakers pressing the Biden administration to change the vehicle definitions.
The revision now allows crossover vehicles with similar features to be treated consistently, which means that crossover SUV is qualified for credits. To qualify for EV tax credits, the maximum price for SUVs is $80,000, and up to $55,000 for cars, sedans, and wagons.
The Treasury has considered the following vehicles: GM’s Cadillac Lyric, Volkswagen’s ID.4, Tesla’s five-seat Model Y, the Ford Mustang Mach-E, and Escape Plug-in Hybrid. The revised definition will apply to EV purchases since January 1.
Meanwhile, the Treasury has yet to issue the proposed guidance on battery sourcing rules by March. It would imply that some EVs will be ruled out as eligible vehicles.