June 27, 2023

How Has the Inflation Reduction Act Evolved for EVs?

7 Min. Read

Looking to drive electric? Recent changes to the Inflation Reduction Act (IRA) changes might influence your decision.

The IRA is increasing the number of incentives available for renewable energy development, making it easier and more affordable to purchase electric vehicles (EVs) and install EV charging stations, solar panels, and other electrification technologies.

This recent update went into effect on April 17, 2023, so understanding how newer incentives affect your expenses when electrifying your home with renewable energy sources is essential. Here, we’ll detail the EV tax credit Inflation Reduction Act changes and how they affect you.

What Is the Inflation Reduction Act (IRA)?

The Inflation Reduction Act (IRA) is the most significant climate legislation in U.S. history to date, and established various programs and incentives to help accelerate the transition to a more sustainable economy. Enacted on Aug. 16, 2022, the IRA reduces inflation and helps keep prices stable by providing $369 billion in funding for energy and climate measures over the next decade.

The IRA modified tax credits and deductions for renewable energy systems, including developments in EV tax credits, renewable energy incentives, and other plans that support climate change solutions. This legislation is expected to drive significant progress in meeting climate and net zero goals while also creating resilient electricity resources and improving the quality of life for Americans.

The EV Clean Car Tax Credit

The Clean Car Tax Credit is a federal tax incentive in the United States designed to encourage the purchase of eligible electric and plug-in hybrid vehicles. The credit, also known as the Electric Vehicle Tax Credit, provides a credit of up to $7,500 on the EV buyer’s federal income tax return for new EVs. Used EV owners can get up to a $4,000 tax credit. This credit helps offset some of the upfront costs of purchasing an EV.

Following its passage in 2022, the Inflation Reduction Act updated several provisions of the EV Tax Credit. However, the tax credit eligibility requirements differ based on the year your EV is purchased and delivered, as the IRS currently divides these tax credit changes between cars purchased in 2022 or earlier and EVs purchased in 2023 or later.

Eligibility for EVs Purchased in 2022 or Earlier

If you purchased an eligible plug-in EV prior to January 1st, 2023, you are eligible for a tax credit of up to $7,500, however, the maximum amount of credit depends on the battery capacity of the vehicle.

To be eligible, your EV must meet the following criteria:

Eligibility for EVs Purchased in 2023 or Later

The Inflation Reduction Act passage changed the rules for EVs purchased between 2023 and 2032. Qualified plug-in EVs and fuel cell electric vehicles (FCV) are eligible for up to a $7,500 tax credit under the revised tax credit. You can only claim one credit per vehicle, and the credit is not refundable if you don’t owe taxes.

Several changes have been made to the eligibility criteria, including:

Income Limits

Your adjusted gross income (AGI) must be below a certain amount to determine if you qualify for the tax credit.

To be eligible for the credit, your AGI needs to be:

  • $300,000 or less for married filing jointly
  • $225,000 or less for heads of households
  • $150,000 or less for other filers
Vehicle Price Limit

The price and type of your EV also affects eligibility. You can only claim the credit if the manufacturer suggested retail price (MSRP) is less than $55,000 for cars and $80,000 for SUVs, pickup trucks, and vans.

Battery Capacity

The battery capacity minimum requirement has been raised from 5 kWh to 7 kWh. If your vehicle has a battery capacity of 7 kWh or more, you can receive the total credit amount.

Qualified Manufacturers

You’ll need to purchase your vehicle from a qualified manufacturer to be eligible for the EV tax credit. The EV also needs to meet MSRP and final assembly requirements as outlined by the IRS, which will gradually increase over time. The update has eliminated the manufacturing cap for 2023 for car manufacturers that had previously sold over 200,000 EVs in the US.

Eligibility for EVs Purchased After April 18, 2023

President Joe Biden signed several recent changes to the EV tax credit into law, which went into effect on April 18, 2023. These adjustments attempt to lessen the U.S.’s dependence on EV batteries from other countries to reach the goal of making half of all new vehicle sales electric by 2030, reducing emissions, strengthening the U.S. ecomony, and combating climate change.

EVs purchased after April 17, 2023, are subject to the following changes:

Credit Amount

The tax credit can be divided into two qualifying components: one for battery requirements and the other for mineral sourcing. In 2023, electric vehicles that fulfill the criteria for both battery and critical mineral requirements will be eligible for the full tax credit, however keep in mind that these requirements gradually increase over time. Each component contributes equally to the credit, resulting in a total credit of up to $7,500 for new EVs.

The critical minerals and battery sourcing requirements do not apply if you purchased and received your EV prior to April 18, 2023.

Battery Requirement

The battery qualification requires that a specific percentage of the vehicle’s battery must be manufactured or assembled within North America.

Critical Mineral Requirement

The necessary mineral qualification requires that critical minerals in the battery must be mined and processed in the United States, or in a country with which the United States has a free trade agreement, or recycled in North America.

Credit Delivery

Starting in 2024, you can transfer your tax credit to a dealer for a point-of-sale discount instead of waiting until tax season. This will help you to save money upfront and remove the hassle of completing additional paperwork when filing your taxes, making the purchase of an electric vehicle more accessible and convenient for Americans looking to drive electric.

Other Renewable Energy Incentives

The Inflation Reduction Act not only incentivizes the purchase of electric vehicles but also promotes the growth of renewable energy. The IRA provides tax credits and other benefits to those who install solar, wind, geothermal, or energy storage technologies to electrify their property. Homeowners who install an eligible system can qualify for up to a 30% federal tax credit.

Energy Efficient Home Improvement Credit

The Energy Efficient Home Improvement Credit is a great way for homeowners to lower their energy costs while also helping the environment by reducing their home’s carbon footprint. This credit is designed to encourage homeowners to make energy-efficient upgrades to their homes by offering them a tax break.

Homeowners who make certain improvements, such as adding insulation, upgrading heating and cooling systems, and installing energy-efficient windows and doors, may be eligible for a credit worth up to 30% of the total cost of the improvements, up to a maximum of $1,200 for energy property costs.

Residential Clean Energy Credit

The Residential Clean Energy Credit is designed to help homeowners offset the costs of installing solar, wind, or geothermal energy systems. This credit can be up to 30% of the cost of an eligible renewable energy system for those who qualify. This credit can be applied to the purchase and installation of eligible solar, wind, or geothermal energy systems for a primary residence.

Take Advantage of the Revised EV Tax Credit Inflation Reduction Act

Take advantage of the revised EV Tax Credit Inflation Reduction Act by purchasing an electric vehicle. The recent adjustments passed in April 2023 have changed the eligibility criteria, with different qualifying requirements for battery capacity, mineral sourcing, and adjusted gross income limits depending on your filing status.

Be sure to check the eligibility requirements for the EV tax credit before purchasing an electric vehicle and ensure it meets the criteria needed to receive the full credit.

With changes from the Inflation Reduction Act, you can save money when you commit to energy-efficient upgrades and by adding an EV charging station, you can take advantage of additional clean energy credits and still enjoy the convenience of charging overnight at home. Finding a reliable electrician to help you with these installations can be a challenge – many of these newer technologies come with increased complexity and safety requirements. Qmerit can help.

As the most trusted electrification installer in North America, Qmerit’s network of certified electricians has been vetted, trained, and certified to safely install your electrification upgrades at the highest quality. Qmerit works hard to find local electricians who are capable and qualified to provide these services so you don’t have to, and our services are always backed by a Peace of Mind Guarantee.

Contact Qmerit today to find qualified, experienced Level 2 EV charger contractors and begin your electrification journey!

Author: Greg Sowder Greg Sowder President, Qmerit Network