What federal tax credits mean for your electric vehicle purchase

With the growing demand for electric vehicles (EVs), consumers are increasingly interested in the tax credits available to make these purchases more affordable. However, recent regulatory changes could impact their decisions.

Under the updated regulations, electric and plug-in hybrid vehicles are eligible for the full tax credit only if they are manufactured in North America, with batteries and essential minerals sourced from the U.S. or a nation that maintains a free trade agreement with the U.S. This development results in a reduced number of vehicles qualifying for the complete $7,500 credit.

However, according to Ronald Montoya, Senior Consumer Advice Editor at Edmonds, this situation is only temporary as automakers adjust their supply chains and have them built in North America.

Tips for Potential Buyers

Montoya suggests checking the Edmonds website or the Department of Energy's platform to find a list of qualifying vehicles. He advises consumers to search for the specific model and gather detailed information about the available tax credits.

The vehicles that have seen a reduction in their tax credits include those from popular manufacturers like BMW, Hyundai, Nissan, Rivian, Volkswagen, and Volvo Cars. Even American manufacturers with a long-standing history of domestic production are not spared from this credit reduction.

For instance, the Ford Mustang Mach-E purchased after April 18 this year witnessed its tax credit halved from $7,500 to $3,750. 

Potential buyers are advised to first look for vehicles manufactured in North America, as this is a key eligibility requirement for the tax credit.

"And then once it has, then that's when the other factors kick in," Montoya said.

There are price limits for tax credits: $80,000 for vans, sports utility vehicles, and pickup trucks, and $55,000 for other vehicles. There are also income limits.

"The limits are fairly high," Montoya said. "But if you feel like you're up there in terms of income, it may be worth double-checking."

Used and Leased EVs

Used electric vehicles bought in 2023 could qualify for a tax credit of up to $4,000, provided they are priced under $25,000 and purchased at a dealership.

One crucial factor to note is the distinction for leased cars. They are classified as commercial business vehicles, exempting them from regulations requiring vehicle and battery components to be made in North America. As a result, consumers could potentially receive the full credit amount on most leased EVs, as long as the companies pass the savings onto the customers.