Should I Buy an EV? Here’s How You Can Take Advantage of $7500 Electric Vehicle Tax Credit

Electric vehicles (EVs) have gradually increased in production in recent years as a response to growing demands for clean energy, particularly vehicles that do not rely on fossil fuels like diesel or petrol. Since these so-called "clean vehicles" use electricity instead of gas to charge their batteries and to function, the United States federal government and some states in recent years have proposed various legislation to further advocate the use and spread of EVs.

After years of both failed and successful legislation and policies, the US finally ratified and implemented one of its most ingenious schemes: the electric vehicle tax credit. This form of rebate is a new federal legislation this year under the federal law Inflation Reduction Act (IRA). Under this law, purchases of EV or fuel cell vehicles (FCV) starting January 2023 until December 2032 will be eligible for up to $7,500 EV tax credit.

Electric Vehicle Tax Credit

(Photo : Photo by CHUTTERSNAP on Unsplash)

The EV tax credit of 2023 has been introduced earlier this year with new requirements that took effect since April 18. Under the IRA, a lesser price ceiling of the maximum tax break is equivalent to half of the maximum $7,500 EV tax credit or $3,750.

The US government agency Internal Revenue Service (IRS) states that qualified vehicles placed in service this year from January 1 to April 17 have a maximum credit of $3,750. Meanwhile, an EV or FC purchased on and after April 18 may receive the $3,750 credit if the vehicle meets the critical minerals or battery components requirement only. Yet, a filer can receive the full $7,500 credit if the vehicle meets both requirements.

The amount of rebate varies depending on certain qualifications and conditions. However, there are certain requirements that needs to be met first for eligibility.

According to the IRS, an individual is qualified for the EV tax credit under the following conditions:

The EV or FCV must be bought for one's own use and not for resale.
The clean vehicle must be used primarily in the US.
Modified adjusted gross income may not exceed $300,000 for married couples, $225,000 for heads of households, and $150,000 for all other filers.

Also Read: New York City Offers $2000 Rebate for Electric Vehicle Purchase

What Cars Qualify for EV Tax Credit?

In addition to the said initial qualifications, a filer must also consider the following cars qualified for the EV tax credit, as mentioned by the U.S. Department of Energy:

2022-2023 Chrysler Pacifica plug-in hybrid
2022-2023 Ford F-150 Lightning (standard and extended range)
2022-2023 Lincoln Aviator Grand Touring
2022-2023 Tesla Model 3 (all variants)
2022-2023 Tesla Model Y (all variants)
2023 VW ID 4 (all variants)
2023-2024 Cadillac Lyriq
2022-2023 Chevrolet Bolt (EV and EUV)
2024 Chevrolet Silverado
2024 Chevrolet Blazer
2024 Chevrolet Equinox
2022 Ford e-Transit
2022 Ford Escape Plug-in Hybrid
2022-2023 Ford Mustang Mach-E (standard and extended range)
2022-2023 Jeep Grand Cherokee PHEV 4xe
2022-2023 Jeep Wrangler PHEV 4xe
2022 Lincoln Corsair Grand Touring
2022-2023 Rivian R1S
2022-2023 Rivian R1T

How to Claim the EV Tax Credit?

According to the IRS, a person (having met the said requirements mentioned earlier) needs to file the following document called Form 8936 to determine one's EV tax credit placed in service during the tax year. Form 8936 also allows a filer to figure his or her credit for certain qualified two- or three-wheeled plug-in electric vehicles.

Furthermore, the US agency also requires filing Form 8936 with one's own tax return, as well as his or her vehicle's VIN. The EV tax credit is officially known as the Qualified Plug-In Electric Drive Motor Vehicle Credit. Also called a tax break, the credit is non-refundable, meaning a filer will not receive any balance once his or her tax liability is reduced to zero.

Should I Buy an EV?

The decision to buy an EV is optional currently. Still, considerations to shift from fuel-based to clean vehicles is also affected by a resident's local laws, rules, or regulations regarding the matter.

For instance in the US, there are already 13 states, including California, New York, and Washington, that have adopted the Zero Emission Vehicles Program, also called ZEV Program, according to the Vermont Department of Environmental Conservation.

US ZEV Program

Under the ZEV Program, statewide car retailers are required to increase sales of zero emission vehicles over the next decade. Yet, there are still challenges surrounding the environment-friendly clean vehicle initiative, especially when it comes to the aspects of socio-economic capabilities.

According to Edem Adukonu, a Boston-based expert consultant at Buro Happold, "Municipalities should enable and adopt innovative solutions to the challenges to EV adoption, including EV charging in multi-family housing. It is easy to install level 2 electric vehicle supply equipment (EVSE) in single-family homes owned by the EV driver, but a challenge appears for multi-family housing renters who may only have access to on-street charging but no garage."

California Clean Air Vehicle Program

California is one of the states that have adopted the ZEV Program, which is part of the California Clean Air Vehicle Program or Advanced Clean Cars Program. First adopted in 2012, the program aimed at reducing greenhouse gas emissions of light-duty passenger vehicles, as well as pickup trucks and SUVs.

California is also one of the pioneers of its initiative to ban the sale of new gasoline cars by the year 2035, as ordered by the California Air Resources Board.

Combined with the federal EV tax credit and California's clean vehicles programs, the state can achieve its goal by increasing its sales of EVs or FCVs in a gradual yet progressive transition. Based on reports from the California Energy Commission, 1.52 million EVs have been sold already by the first quarter of 2023.

According to Joyce Gutierrez, an automotive expert at 4WheelOnline, "Through various incentives such as rebates for purchasing or leasing EVs and an extensive charging network infrastructure, Los Angeles has seen a substantial increase in electric car ownership. As more residents switch from traditional gasoline-powered vehicles to electric ones, emissions associated with transportation have decreased significantly."