It's a new year, and if you're in the U.S. and considering an EV after the 2024 ball drops there are a few changes you should know about - some good, and some... frustrating. The list of cars that qualify for the credit is changing, and fueleconomy.gov has now published their list of qualifying 2024 vehicles. First, let's review the changes.
Please note, nothing in this article should be considered financial advice. For anything relating to your personal tax situation, always consult a tax professional. Below we've described the Clean Vehicle Tax Credit as we understand it, but we cannot guarantee full accuracy.
First, some explainer: The $7,500 tax credit is comprised of 2 parts, each worth $3,750. A car may qualify for one or both parts (or neither).
The first $3,750 is attached to sourcing of battery materials. To qualify, these materials must be mined or processed in the U.S. or with one its trade partners. Since only the automakers know what materials are in their batteries and where they come from, this part of the credit is a bit murky. We rely on the automakers to tell us if they qualify, and the most accurate source of this info is the government itself through fueleconomy.gov.
The second $3,750 is related to where the battery is manufactured. A certain percentage of that manufacturing needs to take place in North America. Each year, the percentage of just how much gets stricter.
The policy intent here is for automakers to bring their materials and assembly to the U.S. and rely less on foreign countries. That helps support the local economy, and reduces the amount of material that gets shipped around the globe - which is better for the environment. That's the idea anyway.
However, it also means that the list of cars that qualify for the credit is getting shorter, for now anyway.
It used to be that you'd file for the Clean Vehicle Tax Credit at tax time, and it would reduce your tax liability by the amount of the credit you and the car qualify for. That meant two things:
That meant the credit wasn't an instant savings. This year, that changes in two important ways.
To pass along the tax credit as instant savings, dealerships will need to first file with the IRS. We presume most will do this before you ever reach the negotiating desk, but it's a good idea to confirm that they've done their diligence before you do your deal. The dealership can then pass through the tax credit amount as a discount on the car or even a cash payout. Ultimately the dealer will get paid back by the IRS, but your benefit is immediate. There's no shenanigans either, the dealer has to pass through the full amount.
You the buyer still need to qualify. If you make too much money, we're sorry but this credit isn't intended for you. The income cap is calculated on modified adjusted gross income, which is your income after certain deductions. The income caps are as follows:
If your income is higher than these caps, check with a tax professional because you may still qualify based on certain deductions like retirement contributions.
And you'll want to be sure, because if you tell the dealer that you're under the cap but then you end up closing the year over the cap, you'll have to settle the difference at tax time and that could mean paying the IRS back the savings you received from the dealer.
The Clean Vehicle Tax Credit is for plug-in vehicles manufactured in North America and there's some fine print around weight, battery size and more. For cars, the MSRP of the vehicle must be below $55,000. For trucks and SUVs, the MSRP can be up to $80,000.
The commercial version of the credit is largely unchanged, and doesn't have the same restrictions around battery materials, manufacturing, income caps or vehicle cost. That means that vehicles like the Ford eTransit Van, while it no longer qualifies under the standard credit, can still take advantage of $7,500 when purchased or leased for use by commercial entities.
Here's the thing- it just so happens that leasing companies are commercial entities, too. When you lease a vehicle, the leasing company collects the tax credit. Some (but not all) of these leasing companies offer to pass the savings through to the customer. One way to take advantage of the credit if you or the vehicle wouldn't otherwise qualify is to lease the vehicle instead, and see if the leasing company will pass along their savings. This means leasing an EV can be a much more attractive option than it would otherwise be for an equivalent gasoline vehicle.
Fueleconomy.gov has now published their much-anticipated list. Here's what we've learned...
We know that GM has stated publicly that they expect many of their models to regain their tax credit eligibility once supply chain changes take effect sometimes in 2024. No word on whether that affects other non-GM models using GM Ultium battery platform, including the Honda Prologue and Acura ZDX. We'll keep you updated as we learn more.
*A previous version of this article listed Volvo EX90 as no longer eligible. Because this vehicle is not yet released, its eligibility is not yet clear.
Update January 24, 2024: The VW ID.4 now qualifies for the full $7,500 tax credit. This article has been updated to reflect the change.