Race Against Time: Electric Vehicle Buyers Urged to Claim Tax Break Before New Eligibility Rules Take Effect

The Inflation Reduction Act has extended the $7,500 tax credit for electric vehicle purchases through 2031, but it has also changed the requirements to qualify for the full credit. These changes, aimed at bringing more manufacturing and supply chains within U.S. borders and those of allies, may make it temporarily more difficult to qualify for the credit, as reported by CNBC on January 25, 2023.

Consumers who are looking to buy electric vehicles have a limited time to claim the tax break, as some rules are on hold until the IRS issues guidance in March 2023. At that time, many vehicles that currently qualify may not qualify anymore until manufacturers meet new rules. There’s a three-month grace period before the new rules take effect.

The Clean Vehicle Credit Is a non-refundable tax credit for buyers of new plug-in electric or fuel-cell vehicles, which can only be fully utilized if the buyer has an annual federal tax liability of at least $7,500. The credit only applies to vehicles “placed in service” after December 31, 2022, and there are rules on income, vehicle price, and manufacturing that limit eligibility.

IRS guidance expected in March will add two requirements for car batteries to qualify for the $7,500 tax credit. Cars that meet one of these requirements will receive half the credit ($3,750), and cars that meet both requirements will receive the full $7,500 credit, according to a report on Barron’s official website on January 20, 2023.

Manufacturers have identified 27 all-electric and 12 plug-in hybrid car and truck models that qualify for the tax break based on existing rules, according to IRS data as of January 17. However, that list is expected to shrink in the short term.