The tax break for buying an electric vehicle is about to hit the accelerator.
Starting in January, EV buyers get up to $7,500 off the purchase right at the dealership, rather than wait months until filing their tax return to get the credit, the Internal Revenue Service said Friday. Accelerating the benefits will help boost adoption of the new technology, industry advocates say.
“It’s like cash on the hood,” said Joel Levin, executive director of Plug In America, a nonprofit that promotes the use of EVs.
Congress made major changes to the federal electric-vehicle tax credit in the 2022 Inflation Reduction Act to encourage car shoppers to shift to greener motors. Though the tax breaks propelled electric-vehicle sales, buyers had to untangle the confusing rules. The list of eligible vehicles keeps changing, new income limits were imposed this year and further changes are expected.
The new rules add yet another wrinkle: Is it better to buy now or wait until the point-of-sale rebate option kicks in?
“There are a bunch of factors: Which car are you thinking about? Is it eligible now? What’s your taxable income for ’23 or ’24? How comfortable are you with leasing?” Levin said.
Consumers who want certain vehicles should buy before year-end. The list of eligible vehicles could shrink in 2024. That is because the IRS has yet to issue expected rules on a provision of the law that excludes vehicles with parts from certain countries, possibly China. Rules around the origin of battery manufacturing also get stricter in 2024.
The income limits—$150,000 for individuals and $300,000 for married couples filing jointly—could also affect a decision. If your income is going above the limit in 2023 or 2024, you need to buy this year to get the credit.
The new rules don’t apply to leases. If you lease an electric vehicle, the manufacturer or lender can build the federal tax credit into the cost. Check the lease payments to make sure the dealer is passing the credit on to you.
“People weren’t intending to lease but they do it for the credit,” Levin said.
Taxpayers who choose the point-of-sale rebate program still must report their EV purchase on their tax return. They’ll need to provide their Social Security number to the dealer and include the car’s vehicle identification number on their 1040. If their income exceeds the limit, they’ll have to pay back the credit. Taxpayers can keep the rebate even if they don’t owe any taxes, according to the IRS.
EV buyers should also take state taxes into account. Nineteen states offer an additional incentive beyond the federal EV credit ranging from $1,000 in Alaska and Delaware to $7,500 in California, Connecticut and Maine, according to the Tax Foundation, a Washington, D.C.,-based nonprofit that supports lower taxes. On the flip side, many states started levying higher registration fees for EVs compared with internal-combustion vehicles as well as taxes on public EV charging.
The Wall Street Journal, Story by Ashlea Ebeling – EV Buyers Can Get Instant $7,500 Tax Credit Starting in 2024 (msn.com)