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A federal tax break that’s available to car buyers for going electric may work differently starting next year.
Under the Inflation Reduction Act — which received Senate approval on Sunday and is expected to clear the House this week — a tax credit worth up to $7,500 for buyers of new all-electric cars and hybrid plug-ins would be extended through 2032. The bill would also create a separate tax credit worth a maximum $4,000 for used versions of these vehicles.
Yet the measure also would usher in new limits to both who can qualify for the credit and which vehicles are eligible for it.
The tax credit has ‘price and income restrictions’
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Another determining factor for whether a vehicle would qualify for a full or partial credit (or neither) include a requirement that the final assembly of the car would need to be in North America. Additional qualifiers include limitations on where key materials for batteries can come from and a mandate that a specified portion of battery components must be manufactured or assembled in North America.
“It’s designed to encourage domestic production in North America,” said Scott Cockerham, an attorney and partner at Orrick.
Many electric vehicles may not qualify for the credit
Међутим, it could be difficult for cars to qualify, he said, depending on where they source their materials and where they complete the manufacturing process. The Alliance for Automotive Innovation has warned that many electric vehicles will be ineligible for the credit right off the bat.
Additionally, another change in the legislation would allow a car buyer who qualifies for the tax credit to transfer it to the dealership, which could then lower the price of the car.
Meanwhile, another modification included in the bill is good news for some electric vehicle manufacturers.
Basically, the existing $7,500 credit was authorized in 2008 and 2009 legislation with the intention of spurring adoption of electric cars. Part of that included a phase-out of the tax credit once a manufacturer reached 200,000 of the vehicles sold.
Tesla hit that threshold in 2018, which means their electric cars currently do not qualify for the tax credit. General Motors is in the same position. Toyota (including its Lexus brand) also has now crossed that threshold, and its electric cars are scheduled to be ineligible for the tax credit after a phaseout of it ends in September 2023.
The congressional measure would eliminate that 200,000 sales cap, making their electric cars again eligible for the credit — at least based on that sales-threshold removal.
Source: https://www.cnbc.com/2022/08/10/inflation-reduction-act-extends-7500-tax-credit-for-electric-cars.html