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EV Tax Credits & The Inflation Reduction Act- Do you and your next vehicle qualify?
109 Plays3 years ago
If you own an electric car or are looking for one, you might know that certain EV purchases come with a dollar amount that the federal government lets you deduct from your taxes. The amount of tax credit varies based on a number of factors, so it can be challenging to know your eligibility. This became even more complicated with new legislation recently released in the Inflation Reduction Act of 2022.
Well, we reviewed all 755 pages of the Inflation Reduction Act (admittedly focusing on the parts pertaining to EVs) and made a list of what you need to know on electric vehicle tax credits. Essentially, the Act extends the $7,500 EV tax credit for 10 years, until December 2032. This is great news for the EV community. However, there are several new exceptions to what qualifies, which gets confusing. Listen in for our clear description of what no longer qualifies and what still qualifies for electric vehicle tax credits.
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Transcript
Introduction to EV Tax Credits
00:00:00
Speaker
Hello and welcome to the Inflation Reduction Act episode where we talk everything about EV tax credits past present and future. Now before we dive into all the specifics about this episode I want to lay out a scenario for you and it's one that we're concerned about as this tax credit goes forward and the scenario is this.
00:00:20
Speaker
Imagine you're going into your local car dealership and you are excited to buy your first EV. Now, there's two cars on the lot and they're both brand new, they're the same color, same specs, same exact options. However, one is eligible for the tax credit for $7500 and the other one isn't. How do you tell the difference? And in this episode, we will walk you through how you tell the difference and the reasons why and we will fill you in on everything that has to do with the EV tax credit.
00:00:49
Speaker
past, present, and future.
Overview of Inflation Reduction Act
00:00:52
Speaker
Welcome to plug in for more brought to you by evuniverse.com. EV universe is your one-stop shop for all things related to the electric vehicle. Here on this podcast, our goal is to educate, inspire, and hopefully make your transition into the electric vehicle marketplace a lot less intimidating. And now here are your hosts, Mike, Tom, and Bryant.
00:01:18
Speaker
So the Inflation Reduction Act of 2022 is kind of a beast of a document and we've had a chance to get through it and hopefully we're going to bring together for you guys a better sense of what to expect going forward into 2023 and beyond for how the tax credits are going to affect EV ownership. Bryant spent a lot of time digging into this. Bryant, can you just catch us up on an overview of what we're doing here?
00:01:43
Speaker
Yeah, so we're going to review a lot of things today, but really the main four things are we're going to review before the Inflation Reduction Act, because that actually still matters. And Mike's going to walk us through that because he's had experience with that. We're going to talk about the Inflation Reduction Act, the rest of 2022. We're recording right now in mid-September, so still a few months left of this year. We're going to talk about 2023 and what the Inflation Reduction Act does for EVs then.
00:02:10
Speaker
And then lastly, we're gonna cover what it does for used vehicles in the future and public and home chargers. So very informative episode today that we're gonna talk through all of those things. Yeah, so let's talk about what happened in the past. So Brian, I know you've done all the new stuff. I've experienced it three or four times already in the past as far as vehicles I purchased that qualify for the tax credit. So let's review that. So that tax credit, which again, still in effect
00:02:39
Speaker
today. It varies anywhere from $2,500 up to $7,500. And that really depends on the size of the battery. So if you had, let's say a plug-in hybrid that it might have qualified for only, again, $2,500 or up to $75 for some vehicles like a Pacifica Hybrid, or the Jeep Wrangler 4xe,
00:03:00
Speaker
or if you have a full EV that would obviously qualify in most instances as well. The one big caveat with this is based on the manufacturer, if that manufacturer sold 200,000 vehicles that qualify for the tax credit, at that point, then there would be a reduction in that tax credit and it would drop down by
00:03:22
Speaker
50% for two quarters and then at that point it would drop down another 25% to only being 25% of that tax rate that it was originally eligible for two more quarters then it'd be done.
00:03:36
Speaker
So there's a couple of different manufacturers that hit that already. One was Tesla back in 2018. Same thing with General Motors and then Toyota just hit that a few months ago. So at this point, there's only a couple of manufacturers that haven't hit it and they're really not producing that many vehicles anyway. So it's really dropped down quite a bit.
00:03:56
Speaker
Let me ask you a question on the tax credit because you walked me through this when I bought my EV6 and there's quite a bit of misinformation even on the old law, let's call it the old law, EV tax credit law. There's still information out there that's incorrect. So for example, a colleague of mine, she went and bought an e-tron and she was able to get the tax credit because she leased it like off the MSRP. When I bought my EV6,
00:04:20
Speaker
They weren't going to do it either if I leased it. It was up to me. So you could just talk about how you get the tax credit. Is it you file it yourself? Does the dealership do it? Just talk a little bit about that. Yeah. So if you lease the vehicle, then that's still because you're leasing it from the leasing company. They're actually the one taking the tax credit at that point in time. So what they end up doing is reducing typically.
00:04:42
Speaker
reduce the monthly payment that you have when you lease that car. So you still quote unquote get it or at least they say that you do. Just depends on how they structure that deal. But then when if you purchase that vehicle, loan or not, then you can still take advantage of that. But the way they look at that is your actual tax liability. So if you have tax liability over that amount or even a partial
00:05:07
Speaker
Let's say at seventy five dollars your tax liability is five thousand where you'd max out on that is five thousand so at the end of the year we end up doing is going through your. Your taxes when you file your taxes you'll there's a couple different steps you'll take within that form and you'll put in the size of the battery some information about that particular car.
00:05:27
Speaker
and then that will reduce your overall tax liability. Don't expect to get a credit back necessarily. It just really depends on your exact financial situation and your taxes. So if you have questions, again, we are not accountants, we are not CPAs, but we're just trying to give you an overview of really how this works. Our biggest recommendation is always work with an accountant that can walk you through these steps. Yeah. Thanks, Mike.
Eligibility and Restrictions for EV Tax Credits
00:05:51
Speaker
That was really helpful.
00:05:52
Speaker
Okay. So that's kind of where we've been. And now let's take a look forward at where we're headed to with the new inflation reduction act. Yeah. So the highlights of this act, by the way, I read 775 pages of it. Just, just kidding. Um, because it's a long act. I don't know. It's a lot of reading for you, Brian. I don't know if you're up for that. It's a lot of reading. It's back in my U of M history days where that was like 700 pages a night, but, um,
00:06:17
Speaker
Anyway, I got a great night's sleep. Every night I try to read it. I fell asleep. Amazing. Just amazing sleeping. But no, I mean, not all 775 talk about EVs, obviously. So I just try to really focus in on the EV specifics. I'm going to try to really give just a high level overview here. There's a lot of very specific details. I'd highly recommend the listener to go to our website, evuniverse.com.
00:06:40
Speaker
check out the full article because it drives into specifics, there's links. We're just going to talk overall, give you a general sense of it. So it's a super important date to remember, August 16th, 2022. That's the date it was actually signed and put into effect. There's four main restrictions on the EVs to qualify after this August 16th date. The first one is probably the most restrictive is the places requirement vehicle must be finally assembled in North America.
00:07:08
Speaker
And so there's a Vindacoder on our website. I highly recommend you go look at our article, like I mentioned, to take a look at your vehicle because this automatically disqualifies several very popular vehicles, such as the Hyundai IONIQ, the KV-6. There's a bunch of other ones that don't qualify. The really interesting one is the Volkswagen ID.4.
00:07:31
Speaker
they're shifting the final assembly to their Chattanooga plant. And so some ID4s will qualify and some won't. And so I think it's really critical to just literally look at your VIN and decode it and see where it's assembled.
00:07:45
Speaker
And as we talked about in the intro, this is a scenario that I'm really concerned about. And I think that we'll see this play out across the board is that you could go to your dealership and they can have two vehicles. One was assembled in Chattanooga, Tennessee, and another one overseas. They're going to look exactly the same. There's not going to be any difference in them. Same option, same color.
00:08:07
Speaker
but you need to look at that VIN to make sure that you know where that car was assembled so that you qualify for the tax credit. Just to give the listener some ideas. There's still 22 vehicles that qualify in 2022 for the new tax credit or the new act. There's only a few though full electric vehicles. The Ford Lightning F-150, the Ford Mustang Mach-E, the Nissan Leaf,
00:08:31
Speaker
The Rivian models, the Volvo S60 Recharge, and Mercedes EQS are the ones that are fully assembled in North America and would qualify. However, there's a few that are still assembled in North America that would qualify, but the next cap is an MSRP of $80,000.
00:08:49
Speaker
So, the vehicle has to be below this 80,000 mark. So, the Lucid Air, for example, would qualify because it's part of being assembled in North America, but it's most likely over 80,000. If you're buying one for under 80,000, good for you. And the same with the Rivians. And same with the F-150 Lightnings.
00:09:09
Speaker
So you really have to pay attention to the purchase price, the MSRP price, exactly 80,000 or below, or final assembly. And some of the vehicles on that list, like I just mentioned, they're going to be over that 80,000, so they will not qualify. And then once you get through those two hurdles, there's an income threshold as well. So you throw those in there, and then the income threshold is for single filers, 150,000. And for couples or dual income families, 300,000.
00:09:39
Speaker
So if you make over that, then it doesn't matter. So your, your lightning could be under 80,000 assembly in North America, and your income is over 150, then you don't qualify. So there's a lot of caveats to this new act that didn't apply before. And I will say, keep it going. In 2023, it's going to be even more murky and confusing.
Battery Component Sourcing Requirements
00:10:01
Speaker
Because in 2023, the battery components takes into effect. So the battery components need to be sourced and figured out where the components are coming from. And I think we're going to do a whole podcast. I'm going to get closer to 2023 about which vehicles actually do qualify.
00:10:21
Speaker
For example, if you're into military fighter jets at all, the F-35, the new military jet, was just discovered to have an engine part made in China. So they stopped making the jet after about 10 years in production because they just decided, oh my gosh, this engine part comes from China, we need to stop. So a lot of manufacturers right now do not really know where their battery source components are coming from.
00:10:48
Speaker
So, 2023 is going to be really interesting to see which vehicles qualify. But according to the act, it's like 40% of the components of the battery have to come from either North America or a country with a free trade agreement with the United States. Exactly, Tom. Exactly right.
00:11:04
Speaker
the reason that they want to bring some of the manufacturing back over the US or increase our capacity. Again, we ran into a lot of the supply chain issues during COVID and that obviously had a big downstream effect on the whole industry, not only just the automakers, but beyond that. So they're trying to bring some of that more manufacturing back in-house again into the US.
00:11:27
Speaker
you're listening to the plug in for more podcast. If you're looking for information on electric vehicles, electric vehicles components or information on how to reduce your carbon footprint, look no further than evuniverse.com. evuniverse.com is your one stop shop for all things related to electric vehicle.
00:11:47
Speaker
I'm with you on all this, but what does this mean for my Maki?
Model-Specific Tax Credit Eligibility
00:11:50
Speaker
I've been waiting for it. Am I going to get messed up at all with it? Yeah, my time. I think that's a great point. So this is also interesting to bring up. So the Maki obviously it has to fit those qualifications. So there it's assembled in North America. I believe the one you order is under 80,000. But let's just say for example, you ordered something that was above 80,000.
00:12:10
Speaker
And it's not assembled in North America. There's also this really big asterisk that if you entered into a written agreement before August 16th, but you have not accepted the vehicle yet, cause it's not, uh, it's not been delivered. It's not been assembled. Then you qualify under the old, um, tax credits. And so that's why we had Mike review the old tax credits. Cause I have to assume quite a few listeners out here are in that boat, right? Like Tom, he's, he's had his on an order for quite a while and he's not been able to pick it up yet.
00:12:40
Speaker
So the caveat here is it has to be a written contract and a binding purchase agreement. Once again, I highly recommend you go to our website and there's a link to the actual IRS. I was not joking when I read all these things, the actual IRS language around what a written contract binding agreement is. And for the purpose of this podcast, we're not going to go all through all of that, but I would say a lot of people probably have some sort of order or
00:13:10
Speaker
reservation for a vehicle and, for example, the EV6 doesn't qualify anymore. But if I had ordered it in March and I don't have it right now, I would have to prove that I have this written agreement of binding purchase and then it would qualify for the credits under the old law. So you should be good, Tom, on your Maki. Cool.
00:13:30
Speaker
I want to know, when's Tom going to get this thing? Any update from Ford? I haven't got my 45-day email yet since the last time we talked about it, but I did try to call and talk to my salesman. I'm still in queue for 2022, but there's some question up in the air. I'm seeing a lot of stuff on social media where people are getting their 2022s converted to 2023s.
00:13:53
Speaker
It changes some stuff. I'm not in love with it. And I kind of hope my 2022 comes, but I have nothing that tells me it's going to be here before they get converted over to a 23 model. All right. Well, I'll keep bugging you on that and making you, making you feel bad every time we talk about it. If I can. Yep. We should ask him every episode. Every day. I think we should. We're going to ask every episode listener.
00:14:19
Speaker
Um, so Mike, you talked about this vehicle capping though of 200,000, you know, it's a kind of exciting that 200,000 goes away in 2023. So what does, what does that mean?
00:14:33
Speaker
Can you get a rebate or not a rebate of vehicle tax credit on a Tesla in 2023? The thought process right now is Tesla will be, some Teslas, Model 3, Model Ys, will be eligible for that tax credit because their final assembly is in the United States. There's some questions on the battery components, on which vehicles, let's say you're looking at a
00:14:57
Speaker
One that's coming out of Texas, model wise, some of those batteries may or may not qualify. But so we'll see where all that ends up on which vehicles again, looking at the VIN is going to be of utmost importance as we move forward with that. But it's something it looks like they will be General Motors Toyota as far as that cap goes. But again, then you have to go into all these other details.
00:15:21
Speaker
Yeah, it's pretty exciting. You can think you need a rebate potentially on a Tesla. I think it also helps GM. Um, they're going to come out next year with, uh, they're teasing the new blazer, um, coming out electric version. They've been teasing the Silverado for a while. I'm not sure. That's how realistic those both are in 2023, but I think the blazers pretty realistic for next year. So I think it helps GM a lot. I don't think they have a lot of EVs besides the Hummer they're planning being much over 80,000 and also Toyota.
00:15:50
Speaker
I think they're going to be putting a lot of EVs that are under 80. So I think it really helps those two manufacturers. And it hurts manufacturers like Rivian and Lucid and some of the Teslas that are over 80. I think it's going to not hurt them, but it's going to definitely disincentivize people from buying them if they don't qualify. But Tesla's proven it doesn't really matter. They haven't been eligible for a tax credit for a while now. There's two other quick ones we want to hit on.
Tax Credits for Used EVs
00:16:16
Speaker
They're a little bit further out in the horizon.
00:16:19
Speaker
Especially for a website like EV Universe, our website, which features mostly used EVs, there is going to be a tax credit for used EVs. It's not until 2024. But we wanted to review very specifically what that looks like. And we'll probably obviously do an entire episode on this as it gets a little bit closer as well. But it's really exciting to think about how we can get more used EVs qualifying for a tax credit. And as your point, Mike, in order to drive adoptions,
00:16:47
Speaker
Um, get a little bit more, you know, of the lower, lower priced vehicles, um, qualifying. So high level, like I said, it's, it's, it's not until 2024, but it's $4,000. And it only applies for vehicles that are sold through a licensed dealer. So no peer to peer sales. It has to be through a dealer. They have to be priced 25,000 or less.
00:17:08
Speaker
And they have to have been in the service for at least two years. So they have to be two model years older. So basically in 2024, you're looking at at least a 2022 or older for 25,000 or less. And there's this whole percentage we're not going to get into. If you want to read it, it's on the website. But basically it's going to be 4,000. It will be the highest. It could be less. It's really exciting though. I really am excited to see what happens with this once it gets closer.
00:17:36
Speaker
And then there's of course income limits very similar to the new vehicles the income limits are a little bit lower a seventy five thousand for single and Couples or dual income 150 so that's pretty exciting But in a world where used vehicles are going higher than the original MSRP How long until that actually is going to be viable for this part of the bill?
00:18:03
Speaker
I think you're talking older Teslas right now. I think that's what you're going to see. Older Teslas and maybe a Nissan Leaf, maybe a Chevy Bull. The purchase price surprises me, honestly, that it's that low. It's not impossible to find a used EV for $25,000 or less, but it's definitely not super easy, right? No. I mean, when you're looking at a lot of the Tesla, I mean, the earlier Model S's are going to be the cheaper ones, right? Like those are the early Model 3's.
00:18:26
Speaker
And if you're finding one for 25 grand, I mean, it's, they're going to be rough, you know, maybe some other manufacturers. If you look at a bolt that had a lower MSRP to begin with or leaf, you can definitely find a leaf for less than that. But this is great though, because when we buy your model asks for parts to convert your Viper, you're going to get a tax credit when you buy that, that wrecked S it'll be under 25 grand. Yeah. I think it's going to have a clean title though. I think.
00:18:54
Speaker
Two more quick ones on this huge one and then we'll move it over to Tom to talk about chargers really quick. I think it's really interesting too. This is going to be fascinating to see how this works. The credit only applies, it follows the vehicle. So only the vehicle is only eligible one time. So I could see a lot, I think this is why they're saying it has to be sold through a dealer. So I could see a lot of misrepresentation and potential fraud with this. I'm not sure how they're going to track it. How does the vehicle qualify?
00:19:21
Speaker
It's going to be really interesting. And then also we're talking about lower price vehicles, lower income limits. I do like this. The dealer is able to basically transfer the credit into their name and then able to give the credit off the vehicle.
00:19:37
Speaker
instantly. So maybe burying the lead here a little bit, but is that part where the dealer is taking that? Is that for used or both new vehicles? From what I was reading, I believe it's just for the used where they can apply it. I didn't read anything about it in the new, but that's a great question. They specifically called it out on the used vehicles and I didn't specifically call it out what I saw in the new.
00:20:02
Speaker
Pretty darn sure you can only do that on the vehicle. I'm just trying to think of how they're going to track these things. How are they going to just implement this? Because with the original tax credit, it was on your tax at the end of the year, but this is
00:20:18
Speaker
a lot more complicated. I think for consumers, you're going to really need to protect yourself if you're counting on that tax credit. If you're going into your dealership, and again, you don't know where that final assembly was because it was in Chattanooga or someplace else, you got to check that out. If you're buying a used car, has it already had this tax credit applied
00:20:40
Speaker
for being used to only do it once. So that's something you had to watch out for is the dealership. You got to make sure that they're giving you that credit. There's just a lot of things that I think are up in the air and that people will need to do to make sure they're getting a fair deal.
00:20:57
Speaker
and they actually get the Stacks credit if they are eligible. That's something where we're working really, really hard here at EV Universe to make sure that we give you guys the most information that we can so that you can protect yourselves going forward. And there's going to be much more coming out from an educational standpoint beyond just this podcast written documentation and other tools that we're creating so that you don't have to worry about it so much. So you have some tools to help you.
00:21:23
Speaker
And I think lastly, and then we'll move over to Tom to talk about the last part of the inflation reduction act. I think it's really interesting. It kind of puts a little bit of power back into the dealer because you can't get this credit peer to peer. It has to be through a dealer. Even still, like anytime you transfer a title, whether you're doing a peer to peer or you're doing it through a dealership, there's going to be a transaction through that state's secretary of state. So there is a government entity that's going to be logging that transaction for it to be legal.
00:21:49
Speaker
And I guess if you're going to be purchasing a used EV and you don't want to register it in your state, you're probably not going to be worried about your tax implications is my guess. Probably doing something else nefarious that's worse than debating your taxes. I don't know. It's just my cynical mind on that. Cynical, yes. I mean, maybe it's that either association did a good lobby on this one. I don't know.
00:22:14
Speaker
Yeah? Who knows?
Tax Credits for EV Chargers
00:22:16
Speaker
The other part of this that comes back with the Inflation Reduction Act is the EV charger tax credit. The last one expired in 2021, but now that it is back on the books, you're looking at for a residential charger of recouping up to 30% of your cost, up to $1,000.
00:22:36
Speaker
So that's going to be good for anyone who puts in a residential EV charger. And then the business charger rebates increased from what used to be $30,000 up to $100,000. So if you're putting it on one of your properties, you've got a lot bigger spread that you can work from to increase your EV charging capabilities. Do you know, does it say level two or level three for those commercial?
00:23:03
Speaker
Because I mean, $100,000 and you're getting in the realm of level three, which really could be advantageous, but I haven't seen anything specific to that if there's any exclusions there. I haven't discovered that either. I guess we'll see how that plays out, but that would be fantastic if it doesn't exclude level three, which I don't see why it would, but I know there was a big push early on with the different versions of this bill for it to be a lot of level twos.
00:23:31
Speaker
But level three, I mean, as you guys know, traveling across the country makes a big difference. And so there's some gaps that throughout the country that would be nice to be filled. Right.
Maximizing Tax Incentives
00:23:41
Speaker
And, and I guess an overarching statement about everything we've talked about at this point, this is just the inflation reduction act at the federal level, your individual state, your individual municipality, your,
00:23:52
Speaker
your power company could have rebates and incentives and all sorts of different things that are going to accompany this and compliment it. So you could end up with a lot more benefits than just from this federal tax act. At the end of the day, we're going to provide you with additional tools and resources, but it also benefits you financially if you do some research before you buy your first EV or your second, just based on
00:24:19
Speaker
you know, what your tax credits could be, you know, local, state and federally anyways. So keep that in mind. I'm super excited because I installed a home charger when there was no credit and now there is. So my reading of the FLAT Act means I qualify now for a 30% rebate on that and I'm pretty excited. Cool.
00:24:40
Speaker
Well, guys, I really appreciate the input and the effort to get all this into one spot. I think it's going to be helpful for listener out there to take it in and try to, you know, synthesize us a little bit because it is a complicated act and there is a lot of changing and moving parts and, you know, stay tuned to what we're doing here because there will be updates and we will, you know, bring clarifications when it's available. Sounds great. Thanks, guys. It's been fun. Thanks, buddy. Thanks, everybody.
00:25:07
Speaker
Thank you for listening to plug in for more. Make sure you subscribe so you don't miss any future episodes. In the meantime, check out the one-stop EV Marketplace, evuniverse.com. Until next time.