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$7,500 tax credit may be harder to get starting March

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Getting a $7,500 tax credit to buy a new electric car is likely to become more difficult in a few months, meaning potential buyers who need a financial incentive may want to speed up their timeline.

The Inflation Reduction Act, a historic climate bill signed into law by President Biden in August, changed the rules for an existing tax credit associated with the purchase of “clean” cars.

The law, which extended the tax break through 2031, changed some of the requirements to get the full value of the $7,500 “clean car loan”.

Some tax and auto experts believe the changes, largely designed to increase the number of production and supply chains within US and allied borders, will temporarily make it harder to qualify for all or part of the loan.

Some rules are on hold until the IRS issues instructions.

Some of the tax credit rules went into effect on January 1st. (More on those below.) But others, related to minerals and battery components—perhaps more difficult to follow—don’t go into effect until the IRS issues guidance. The agency expects to do so in March 2023.

At the time, many clean cars that currently qualify for tax breaks can no longer—at least until manufacturers can comply with the new rules.

More from Smart Tax Planning:

Here’s a look at other tax planning news.

Consumers who are in the market for a new electric car, truck or SUV are likely to have a limited amount of time during which it will be easier for them to claim tax breaks, experts say.

“There is almost a three-month grace period,” said Leslie Jantarasami, managing director of the energy program at the Center for Bipartisan Policy.

Manufacturers determined According to IRS data as of January 17, 27 all-electric and 12 plug-in hybrid car and truck models are eligible for tax credits under existing rules. (Buyers must also meet criteria such as income requirements.)

This month, Tesla cut prices on some car models to help them qualify for tax breaks. The list of vehicles is likely to be updated in the coming days and weeks, the IRS said.

After the IRS guidance came in, Jantarasami said, “I don’t think there is any doubt that the list of eligible car models will shrink in the short term.”

However, if that happens, consumers could instead receive a separate tax credit when buying a used electric car instead of a new one, or perhaps when renting a car, experts say.

How the $7,500 Clean Car Tax Credit Works

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“We don’t know what will happen in March”

The upcoming IRS guidance – again expected in March – adds two requirements to car batteries.

Expected regulations will tie the $7,500 loan amount to whether a new clean car’s battery meets critical mineral and battery component requirements.

  • Battery components: At least half of the vehicle battery components (like battery cells and modules) must be manufactured or assembled in North America starting in 2023. This share will increase to 60% in 2024 and 2025 and gradually rise to 100% in 2029.

Vehicles that meet one of these requirements receive half the credit ($3,750). Vehicles that meet both requirements receive full price.

It is likely that few, if any, new clean cars will be eligible for the full $7,500 when these two requirements go into effect.

“We encourage consumers interested in buying and in a place to buy right now to do so,” said Ingrid Malmgren, political director of Plug In America, a nonprofit clean vehicle advocacy group. “Because we don’t know what will happen in March.”

Until March, the full cost of the loan is instead tied to battery capacity calculation.

Vehicle specifications such as battery capacity, final assembly location and VIN are listed on the glass sticker. IRS said.

Drivers have other options to get tax breaks


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