US just updated list of electric cars eligible for $7,500 tax credit (2023)

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Tesla cars stop in Chicago on March 28, 2022. The $7,500 tax credit for buyers of new electric vehicles is changing again after the US unveiled new guidelines that will affect the list of eligible car models.Images by Scott Olson/Getty hide caption

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Images by Scott Olson/Getty

Tesla cars stop in Chicago on March 28, 2022. The $7,500 tax credit for buyers of new electric vehicles is changing again after the US unveiled new guidelines that will affect the list of eligible car models.

Images by Scott Olson/Getty

The federal tax credits for electric vehicles, which have been a source of confusion for automakers and car buyers for months, just got another big change.

All due to emerging battery power requirements.

The new rules, whichwere announcedlast month they required a certain percentage of minerals and battery components to come from North America or a US trading partner. They are intended to encourage US-based manufacturing and were part of the massive climate bill that renewed the tax credit for electric cars.

The IRS on Monday released an updated list of cars that will qualify under the new battery guidelinesFuelEconomy.gov. It took effect on Tuesday. And - normal for these ever-changing rules - the roster changed again on Wednesday, with some vehicles added back.

Overall, General Motors and other US automakers stand to benefit the most from the revamped rules.

Several of the most popular models – like the Tesla Model Y and Chevy Bolt – still get the full $7,500.

But half a dozen models now get a $3,750 credit, and the Nissan Leaf, as well as several plug-in hybrids, lose the credit entirely.

Here's what you need to know.

Fewer vehicles are eligible for $7,500

The $7,500 tax credit is actually two separate credits worth $3,750 each. Before April 18, all qualifying vehicles received both credits, but now vehicles can qualify for neither, one, or both.

The IRS states that the following vehicles are still eligible for both $7,500 tax credits:

• Cadillac Lyriq
• Screw Chevrolet
• Chevy Bolt EUV
• Chevrolet Silverado EV
• Chrysler Pacifica PHEV
• Ford F-150 Lightning
• Híbrido plug-in Lincoln Aviator Grand Touring
• Tesla Model Y (AWD, Long Range and Performance AWD)
• Tesla Model 3 (performance)
• Volkswagen ID.4 (Standard, S, Pro, Pro S, Pro S Plus, available as AWD Pro, AWD Pro S and AWD Pro S Plus)

The upcoming Chevy Blazer and Chevy Equinox EVs will also be eligible for both credits.

Volkswagen did not appear to be eligible for the credit when the IRS released the initial list Monday, but it was added to the IRS website Wednesday.

These vehicles are now eligible for a single tax credit worth $3,750:

• Ford E-Transit
• Ford Escape plug-in hybrid
• Jeep Wrangler 4xe
• Jeep Grand Cherokee 4xe
• Híbrido plug-in Lincoln Corsair Grand Touring
• Mustang Mach-E
• Tesla Model 3 (Standard Series RWD)

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A man looks at a Chevy Bolt EUV at the North American International Auto Show in Detroit on September 14, 2022. The IRS announced that Chevy Bolt and Bolt EUVs will qualify for the full tax credit.Geoff Robins/AFP via Getty Images hide caption

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Geoff Robins/AFP via Getty Images

A man looks at a Chevy Bolt EUV at the North American International Auto Show in Detroit on September 14, 2022. The IRS announced that Chevy Bolt and Bolt EUVs will qualify for the full tax credit.

Geoff Robins/AFP via Getty Images

In addition, Rivian, which makes the R1T electric truck and R1S SUV, says it has submitted updated documentation that it qualifies for a $3,750 single tax credit, and expects the IRS website to reflect its eligibility .” updates.”

And these newly eligible vehicles will no longer receive tax credits after April 18:

• Audi Q5 TFSI and Quattro
• BMW 330e
• BMW X5 xDrive45e
• Genesis Electrified GV70
• Nissan Leaf S, S Plus, SL Plus, SV and SV Plus (Nissan says it "hopes the LEAF will qualify for at least a partial credit in the future").
• Volvo S60 (PHEV), Extended Range e T8 Recharge (Extended Range)

So whether you're looking for a Model Y or a Ford Lightning, nothing will change. You can still get the full $7,500 credit.

But if you had your eye on a Mustang Mach-E or were waiting for a Tesla Model 3 RWD, delivering that vehicle on Monday instead of Tuesday could mean an additional $3,750 in tax savings. (Note thatsays the tax officethe vehicle must bedelivered to the taxpayer, not just ordered, until the 17th.)

So wait, why is the tax credit changing again?

Recent yearsclimate law, supported by the Biden administration, not only renewed the tax credit for electric cars. It also added a series of restrictions aimed at strengthening US supply chains.

In short, the idea was that car companies wishing to take advantage of the tax credit would have to comply with complex rules designed to increase US-based production.

These rules covered not only the construction of the car, but also the origin of the materials that go into vehicle batteries.

One of the $3,750 credits focuses on the raw materials that go into the batteries: A certain percentage of critical minerals, such as lithium, graphite and cobalt, must be mined or processed in the U.S. or a trading partner.

The other $3,750 credit is for battery manufacturing: a certain percentage of battery components, such as anodes, cathodes and electrolytes, must be manufactured or assembled in North America.

However, defining the specific guidelines for each was so complicated that the Treasury Department effectively delayed enacting that aspect of the climate law while it worked through it.

The IRS finally came up with the rules late last month, hence the change in how cars will be eligible for the tax credit.

Unsurprisingly, foreign automakers were the biggest losers in this boost to domestic production. Hyundai and Kia previously lost access to the tax credit because they still don't build their electric cars in North America. Now, Nissan also cannot benefit from the tax credit because its batteries do not have enough national or partner country content.

Vehicles from five US automakers are still eligible: Tesla (the dominant electric vehicle maker), Ford, GM, Stellantis and Rivian. Volkswagen is the only foreign carmaker still eligible for credit.

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People look at the Cadillac Lyriq at the North American International Auto Show in Detroit on September 14, 2022. The electric car will still qualify for the full tax credit under the latest IRS guidelines.Geoff Robins/AFP via Getty Images hide caption

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Geoff Robins/AFP via Getty Images

People look at the Cadillac Lyriq at the North American International Auto Show in Detroit on September 14, 2022. The electric car will still qualify for the full tax credit under the latest IRS guidelines.

Geoff Robins/AFP via Getty Images

But beware: being "eligible" does not guarantee a tax credit

To receive a tax credit, other requirements still apply. Vehicles must meet the battery size and vehicle weight requirements and, more importantly, meet these two requirements:

• To be assembled in North America
• Have a list price of less than $55,000 for cars and $80,000 for SUVs and trucks

Features may add to the sticker price and fitment locations may vary, so for each individual car the buyer should verify that these fitment requirements and price limits are met.

And if you want an electric car, check your income too.

It's not just the car that has to qualify: there's an income limit for buyers. It's based on "modified adjusted gross income" - your income after certain deductions (such as superannuation contributions). It's usually line 11 on Form 1040, but if you have foreign income or income from Guam or Puerto Rico, you'll need to add them back.

The limits for new vehicles are:

• $300,000 for couples filing jointly
• $225,000 for heads of household
• $150,000 for all other filings

You qualify if you earn less than the limitAnythe current fiscal yearthethe previous year, so a single year of high income won't disqualify you.

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Ford F-150 Lightning trucks are shown at the Ford Rouge Electric Vehicle Center in Dearborn, Michigan on April 26, 2022. The Lightning will still be eligible for the full $7,500 tax credit, but it also depends on other criteria, including its sticker price vehicle and buyer's income.Bill Pugliano/Getty Images hide caption

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Bill Pugliano/Getty Images

Ford F-150 Lightning trucks are shown at the Ford Rouge Electric Vehicle Center in Dearborn, Michigan on April 26, 2022. The Lightning will still be eligible for the full $7,500 tax credit, but it also depends on other criteria, including its sticker price vehicle and buyer's income.

Bill Pugliano/Getty Images

Start thinking about next year's taxes

This year, you also need to make sure your tax liability is large enough that you can actually use the credit. It doesn't flow. If you qualify for a $7,500 credit but only owe $3,000, your tax bill will drop to zero (and you'll get a refund of the money withheld from your wages), but the extra $4,500 will be lost. you are not paid.

Next year, in 2024, that will change. You can get the tax credit as an immediate discount on the price. So, as long as you qualify, you'll get the benefit – regardless of the size of your tax bill.

What about used vehicles?

There is onelower tax credit for used electric vehicles, and it doesn't change.

Here's what you need to know. There is an income cap and, as with new cars, it's based on modified adjusted gross income (line 11 of your 1040, unless you have foreign income or income from an adjustment area). And, as with new vehicles, you qualify if you're below the income limit in the current or previous year. The yield limits for used vehicles are:

• $150,000 for couples filing jointly
• $112,500 for heads of household
• $75,000 for all other filers

For used vehicles, the list of requirements is not very long:

• You must buy your used EV from a dealer, not a private individual.
• Each vehicle can only claim the used vehicle credit once, so it cannot already be sold for the used vehicle tax credit.
• The vehicle must be at least two years old and meet the weight and battery size requirements (a list ofspecialized vehicles)
• Purchase price must be $25,000 or less.

The latter may be the biggest challenge. According to Cox Automotive, used EV prices are falling, but the average import price last quarter was still $43,400.

But if you find a qualifying vehicle, you can get a tax credit worth 30% of the sales price, up to a limit of $4,000.

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Rivian says its R1S SUV, shown here, will continue to qualify for an electric car tax credit after being left off the original IRS list. However, the price cap requirement will be a stumbling block for most buyers: only a base version of the premium electric SUV is available under the $80,000 price cap.Kevin Dietsch/Getty Images hide caption

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Kevin Dietsch/Getty Images

Rivian says its R1S SUV, shown here, will continue to qualify for an electric car tax credit after being left off the original IRS list. However, the price cap requirement will be a stumbling block for most buyers: only a base version of the premium electric SUV is available under the $80,000 price cap.

Kevin Dietsch/Getty Images

Do you want to rent? That is easy.

Leased vehicles qualify for a separate $7,500 tax credit, with no restrictions on the car's price, income or place of manufacture.

There is one catch: a tax credit for a leased vehicle goes to the leasing company, not the driver directly, so make sure your lease actually passes the deduction on to you.

Tax credits will continue to change

These rules continue to change in many ways, including:

• car manufacturers arealready strugglingchange their supply chains to comply so that more cars qualify over time...
• ... but every year the required percentages increase and soon new restrictions on Chinese components will come into force. Therefore, fewer cars can qualify.
• Buyers will be able to take the credit as a dealership rebate, instead of a tax credit, starting next year.
• How the IRS applies these rules may change. The current implementation has been criticized by some members of Congress, who believe the Biden administration has added so much flexibility to automakers that it undermines the purpose of the legislation.

In short: if you want to buy an EV in the future, you should confirm when purchasing the vehicle that it meets the requirements.