The Inflation Reduction Act (IRA) passed in Congress and was signed into law. The new law makes some critical changes to the $7,500 federal tax credit for electric vehicles for 2023. The 200,000 manufacturer cap has been removed. But EVs must now be assembled in North America to be eligible. Eventually, batteries will need to be produced and sourced in North America to receive the full credit. Vehicles will also need to be priced beneath a $55,000 threshold for cars and an $80,000 cap for trucks, SUVs and vans.
The IRS now maintains a list of electric and PHEV vehicles that can potentially receive a federal tax credit. The list contains many of the cars we expected. Though an interesting twist is that not all "crossovers" qualify as SUVs. The IRS classifies the Cadillac Lyriq, for instance, as a car rather than an SUV. Because the Lyriq starts at $62,990, all versions are currently ineligible for a credit. The same requirements rule out five-seater versions of the Tesla Model Y and all but the base model of the Ford Mustang Mach E.
Expect more EVs to be added over time. The law intends to influence automaker decision-making. And in the coming years, we should see more manufacturers moving EV and battery production to North America and offering more affordable vehicles (or more affordable versions of current cars) to meet the requirements.
Factors to Note About the Federal EV Tax Credit
The EV tax credit is non-deductible: You must owe money to be eligible for the federal EV tax credit. You can't use it to create or enhance your refund. The rule will change, allowing manufacturers to offer the discount at the point of sale. But that change does not go into effect until 2024.
The EV tax credit is now income-limited: Your adjusted gross income must be less than $150,000 individually or $300,000 for a married couple to be eligible for a federal EV tax credit.
2023 Vehicles Eligible for the Federal EV Tax Credit
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Chevrolet Bolt EV
Jeff@jeffludes.com
GM cars are eligible for the tax credit again. And the Bolt EV starts nearly $30,000 under the threshold to receive it.
Ford has jacked up the price of the base Pro model F-150 Lightning, which now starts at $55,974. But that still falls under the $80,000 limit. The cheapest Extended Range model exceeds the $80,000 price threshold.
The Ford Mustang Mach E does not qualify as an SUV under the new system. That means only the base "Select" model will fall beneath the $55,000 threshold. That limits you to the standard range battery pack, but does offer leeway to add all-wheel-drive.
Nissan builds the Leaf at its plant in Tennessee. And both the S ($28,040) and SV Plus ($36,040) versions fall well below the $55,000 threshold for a federal tax credit.
The window is tight. But you can still get a federal tax credit on the R1S if you stick with the bare-bones dual-motor AWD and standard pack configuration.
A Rivian R1T can be ordered with a dual-motor AWD powertrain and either the standard or large battery pack and still fall beneath the $80,000 threshold.
In one of the new system's more interesting quirks, the three-row Tesla Model Y qualifies as an SUV while the two-row version does not. That means you can order both Long Range and Performance versions of the 7-seater Model Y and still receive a credit, but no versions of the 5-seater Model Y are eligible.
All versions of the Volkswagen ID.4 can qualify for the federal tax credit. RWD versions do not qualify as SUVs and are capped at $55,000. AWD versions do qualify as SUVs and have an $80,000 price threshold.
