On August 16, 2022, President Biden signed the Inflation Reduction Act into law, which changed the requirements for the EV tax credit. The following details how the new legislation impacts transactions between when the legislation passed and was signed by President Biden, the period from August 16 to December 31, 2022, and after January 1, 2023, when many of the law’s requirements take effect. NJ CAR encourages dealers to consult with their OEMs to get specific details as to the applicability of the law to specific models, including information on the sourcing of the critical minerals and components that go into making the batteries for such vehicles.
Pre-August 16, 2022
- The tax credit will apply to all applicable EVs sold or ordered with a binding contract, including a deposit, before the signing of the law on August 16, 2022.
- The Internal Revenue Service (IRS) has stated that “if a customer has made a non-refundable deposit or down payment of 5% of the total contract price, it is an indication of a binding contract.”
August 16 through December 31, 2022
- All applicable EVs must be assembled in North America.
- The Department of Energy has provided a list of electric vehicles that MAY meet the final assembly requirement, based on data submitted to the NHTSA and FuelEconomy.gov as of August 1, 2022. Because some models are built in multiple locations, there may be vehicles on the list that do not meet the final assembly requirement in all circumstances. Dealers should contact their OEMs to verify what vehicles are eligible for the federal tax credit under the new requirements. Dealers can also access NHTSA’s VIN decoder website (https://vpic.nhtsa.dot.gov/decoder), enter the full VIN, click “Decode VIN” and review the field at the bottom of the page result, which lists the build plant and country for the specific searched vehicle.
- 2022 Audi Q5
- 2022 BMW 3-series Plug-In
- 2022 BMW X5
- 2022 Chevrolet Bolt EUV (Manufacturer sales cap met; not eligible until 1/1/23)
- 2022 Chevrolet Bolt EV (Manufacturer sales cap met; not eligible until 1/1/23)
- 2022 Chrysler Pacifica PHEV
- 2022 Ford Escape PHEV
- 2022 Ford F Series
- 2022 Ford Mustang MACH E
- 2022 Ford Transit Van
- 2022 GMC Hummer Pickup (Manufacturer sales cap met; not eligible until 1/1/23)
- 2022 GMC Hummer SUV (Manufacturer sales cap met; not eligible until 1/1/23)
- 2022 Jeep Grand Cherokee PHEV
- 2022 Jeep Wrangler PHEV
- 2022 Lincoln Aviator PHEV
- 2022 Lincoln Corsair Plug-in
- 2022 Lucid Air
- 2022 Nissan Leaf
- 2022 Rivian EDV
- 2022 Rivian R1S
- 2022 Rivian R1T
- 2022 Tesla Model 3 (Manufacturer sales cap met; not eligible until January 1, 2023)
- 2022 Tesla Model S (Manufacturer sales cap met; not eligible until January 1, 2023)
- 2022 Tesla Model X (Manufacturer sales cap met; not eligible until January 1, 2023)
- 2022 Tesla Model Y (Manufacturer sales cap met; not eligible until January 1, 2023)
- 2022 Volvo S60
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- 2023 BMW 3-series Plug-In
- 2023 Bolt EV (Manufacturer sales cap met; not eligible until January 1, 2023)
- 2023 Cadillac Lyriq (Manufacturer sales cap met; not eligible until January 1, 2023)
- 2023 Mercedes EQS SUV
- 2023 Nissan Leaf
After January 1, 2023
- All applicable EVs must be assembled in North America.
- In 2023, 40% of the critical minerals used in batteries must be extracted or processed in North America or in a country with which the U.S. has a free trade agreement. The percentage of critical materials increases 10% per year, from 2024-2026, topping out at 80% in 2026.
- In 2023, 50% of the battery components must be manufactured or assembled in North America. The percentage of battery components increase to 60% in 2024 and 2025, 70% in 2026, 80% in 2027, 90% in 2028 and 100% after 2028.
- After December 31, 2024, critical minerals cannot be in a battery if it was extracted, processed, or recycled by a foreign entity of concern.
- After December 31, 2023, battery components cannot be manufactured or assembled by a foreign entity of concern. The Secretary of the Treasury shall issue guidance for requirements 2, 3, 4 and 5 no later than December 31, 2022.
- Effective after guidance is issued by the Secretary of the Treasury, the tax credit will have a MSRP limitation. For vans, SUVs, and pick-up trucks the limitation is $80,000. For any other vehicle the limitation is $55,000.
- Effective January 1, 2023, the tax credit will be applied to the sale of a used EV, defined as being at least 2 years earlier than the calendar year in which the taxpayer purchases the vehicle. The amount of the credit is $4000 or 30% of the sale price of the vehicle. The sale must be the first sale after the enactment of the law and the sale price cannot be more than $25,000. The sale cannot be to a business, purchased for resale or made to an individual who has received the tax credit during the prior 3 years preceding the purchase of the vehicle.
- Effective after guidance is issued by the Secretary of the Treasury, the tax credit will be subject to income limitations. For new vehicles, the income limitations are modified adjusted gross income of $150,000 for single taxpayer; $225,000 for head of household and $300,000 if filing jointly or surviving spouse. For used vehicles, the income limitations are modified adjusted gross income of $75,000 for single taxpayer; $112,500 for head of household and $150,000 if filing jointly or surviving spouse.
- Effective January 1, 2024, and subject to regulations or other guidance the Secretary of the Treasury deems necessary, a purchaser of a new or used EV may transfer the tax credit to a dealer on the date of purchase of the vehicle and receive an immediate benefit from the tax credit. The Secretary of the Treasury shall establish a program for the advance payment to eligible registered dealers.
- If a purchaser elects to transfer the tax credit to a dealer and receives the benefit of the credit and it turns out that they were ineligible, their tax due for that year will be increased by the amount of tax credit they received.
- The tax credit for new and used EVs will terminate on December 31, 2032.
If dealers have questions about this topic or any other questions, they can contact Greyson P. Hannigan, NJ CAR’s Director of Legal & Regulatory Affairs at (609) 883-5056 – ext. 340 or via email at [email protected].