The Inflation Reduction Act, introduced in mid-2022, completely changed the federal tax credit for electric vehicles in the United States. Today, we will take a look at this important incentive and which models qualify for it based on everything we know so far.

Note that this December 2023 update is only good for a few more weeks—the tax credit will change even more in January 2024 when restrictions around foreign-sourced battery materials go into effect. We'll update you when we know more about what's at stake next year, but fewer models are expected to qualify for the full credit then. 

Update: This post has been updated with new models (Tesla Cybertruck, Nissan Leaf and Tesla Model Y RWD).

Requirements

The federal tax credit is a pretty significant incentive of up to $7,500 for new plug-in electric cars that fully comply with the requirements. Initially, as of mid-2022, the main requirement was that an electric vehicle must be produced in the US, Canada or Mexico.

After April 18, 2023, those requirements were expanded and quite tough. Moreover, with each following year, they are set to be tougher.

As of June 2023, the requirements include:

  • Final assembly in North America: US, Canada or Mexico
  • MSRP limit:
    • SUVs, vans, pick-up trucks: $80,000
    • Other Vehicles (cars): $55,000
  • Income limits for different tax statuses:
    • Single: $150,000
    • Head of HH: $225,000
    • Filing jointly: $300,000
  • Battery requirements:
    • Critical minerals ($3,750): 40% of the value of critical minerals need to be mined or processed in the United States (or FTA countries), or recycled in North America
      (conditions have been relaxed to include Japan)
    • Battery components ($3,750): 50% of the value of battery components must be manufactured or assembled in North America
  • at least 7-kilowatt-hour (kWh) battery
  • gross vehicle weight rating of less than 14,000 pounds (6,350 kilograms)

One of the best presentations of the requirements was included in the Fact Sheet IRA EV Tax Credits, released by Electrification Coalition and SAFE:

external_image

As we can see, the models that fully comply with the requirements are eligible for up to $7,500. Meeting just one of the battery-related requirements (critical minerals or components) will reduce the incentive to $3,750.

The available maximum tax credit, depending on meeting the critical mineral and battery component requirements:

  • EVs that meet both requirements: $7,500
  • EVs that meet only one requirement: $3,750
  • EVs that do not meet requirements: $0

Starting in 2024, the federal tax credit will be significantly improved, because it will become a rebate applied at the point of purchase. But the new restrictions will also be in effect by then as well.

Eligible BEV Models (April 18, 2023-December 31, 2023)

In terms of manufacturers, so far only six of them were confirmed to qualify for the incentive: General Motors (Chevrolet and Cadillac), Ford, Nisan, Rivian, Tesla, and Volkswagen.

The list of models, which can get either up to $3,750 or $7,500 changes from time to time and as of December 7, 2023, includes:

external_image

Interestingly, some of the all-electric cars that are locally produced are no longer eligible for the federal tax credit incentive.

A prime example of that was the Nissan Leaf, which lost its eligibility on April 18, 2023, despite being equipped with locally produced lithium-ion battery cells. We guess that it missed the battery-related requirements a bit. However, in October, the Nissan Leaf regained its eligibility for the federal tax credit ($3,750), which suggest changes in the supply chain of some battery components.

Another example is the Genesis Electrified GV70, which entered production in Montgomery, Alabama in February. As we understand, its battery components are currently sourced from South Korea, which after April 18, 2023, means no incentive. Otherwise, it would be very competitive with the imported Genesis GV60 model.

Eligible PHEV Models

In the case of the plug-in hybrid car models, the list is even shorter, because there are three manufacturers (BMW, Stellantis - Chrysler/Jeep brands, and Ford - Ford/Lincoln brands).

external_image

Lease To Get The Full $7,500 Incentive

One of the most important and also quite surprising things is that in the case of leasing, customers still can benefit from the full $7,500 federal tax credit, even if a particular model does not comply with the requirements outlined above (or if a customer is not eligible).

We saw many reports that lease rates might be lowered when deducting the incentive on the manufacturer/dealer level (passing them through the lease). To reduce monthly interest/taxes, customers can also buy out the car early.

The reason for that are found in two separate sections of the law:

  • 30D section for individual purchase (includes all requirements)
  • 45W section for commercial credits (does not include the requirements outlined above)

According to the IRS’ December interpretation (via Electrek), businesses that lease vehicles are allowed to claim the commercial EV tax credit for each leased vehicle, which opens a way to pass the full $7,500 federal tax credit up to customers.

An example of the EV tax credit loophole was described in April for Hyundai and in May for Tesla. There were also reports about attractive lease deals from various models, including Kia EV6, Hyundai Ioniq 5/Ioniq 6, and Tesla Model 3. We believe that this solution might work with any brand and most are probably already offering attractive deals already.

See also

all tesla model3 7500 federal tax credit US: All Tesla Model 3 Versions Qualify For $7,500 Federal Tax Credit Now
electric car prices us US Electric Car Prices: Cheapest To Most Expensive

Sources: Fact Sheet IRA EV Tax Credits by Electrification Coalition and SAFE, IRS, fueleconomy.gov, Electrek

Got a tip for us? Email: tips@insideevs.com