US Electric Vehicle Tax Credits Get Tougher to Navigate

The process of claiming a tax credit for an electric vehicle is about to get more complicated, according to the Treasury Department and the Internal Revenue Service (IRS).

The new guidelines, which were issued on March 31, are a result of provisions in last year’s Schumer-Manchin bill, also known as the “Inflation Reduction Act” (IRA).

The original electric vehicle tax credit, which was effective for cars from 2009 and ranged from $2,500 to $7,500, claimed $7,500 in 2009. The equivalent value of this credit in 2022 is $10,230.75.

Treasury Secretary Janet Yellen said that the guidelines are an important step towards saving consumers up to $7,500 on a new clean vehicle and hundreds of dollars per year on gas. However, Democrat Senator Joe Manchin, whose support was crucial in passing the IRA, expressed concern that the guidelines are biasing against fossil fuels.

In a statement, Manchin said that the guidelines ignored the intent of the IRA, are a pathetic excuse for spending taxpayer dollars, and are also ceding control to the Chinese Communist Party.

The proposed rule is planned for publication on April 17 and still includes the “lease loophole” for foreign-made vehicles. Individuals leasing a vehicle may be able to take advantage of this loophole if the company from which they leased the vehicle secures a commercial tax credit under the IRA.

The IRA’s commercial tax credit has a cap of $40,000 for vehicles with a gross vehicle weight rating of 14,000 pounds or above.

More Details

The proposal outlines the criteria that must be met by a “new clean vehicle” for taxpayers to claim either a $7,500 credit or a partial $3,750 credit. “New clean vehicles” include electric plug-in vehicles, hybrids, and certain fuel cell vehicles that must be propelled by an electric motor to a significant extent.

For pickups, vans, and sport utility vehicles, the list price must not exceed $80,000 to be eligible for the credit. Other vehicles must have a ceiling of $55,000.

Moreover, vehicles must receive final assembly in North America to be qualified. For purposes of determining the location of final assembly, North America includes the United States and Puerto Rico, Canada, and Mexico, according to the Department of Energy’s guidance on the clean vehicle credit.

Critical Minerals

The plan outlines complicated needs for critical mineral sourcing and battery component production, reflecting a new procedure for calculating vehicle tax credits with the IRA. Before last year, credits were only based on battery capacity and had a basic rate of $2,500.

Critical mineral sourcing annually grows the percentage of critical minerals that must achieve certain standards until 2027. It rises from 40 percent in 2023 to 80 percent in the same year.

To be eligible for a partial $3,750 credit, vehicles have two broad options:

* The minerals must be recycled in North America.

* They must be mined or processed in the United States or in a country with a