Bar Set High for New Electric Vehicle Tax Credits

Aug 31, 2022 | Uncategorized, Blog

For most people, tax planning involves taking advantage of tax credits whenever possible. A new bill, recently signed into law by President Joe Biden, made drivers eligible for a $4,000 tax credit for the purchase of a used electric vehicle, or a $7,500 tax credit for the purchase of a new one. However, these tax credits come with restrictions.

The tax credits were part of the Inflation Reduction Act, but critics of the bill claim they limit drivers’ options and may ultimately lessen the appeal of electric vehicles. Restrictions limit the purchasing of electric cars, as well as their batteries, to United States manufacturers and the free-trade partners of the US. This means that the credit would not be given to consumers who buy these products from China or other “foreign entities of concern.” Internal Revenue Service tax attorneys are aware of additional restrictions, e.g., that final assembly of the vehicle be completed in North America. In addition, the credits only apply to cars and trucks with the manufacturer’s suggested retail price of $80,000 for SUVs and trucks and $55,000 for cars.

Biden and Others Defend Restrictions

Biden has stated that the hundreds of billions of dollars he has earmarked for the prevention of climate change through the Inflation Reduction Act makes it one of recent history’s most significant laws. Proponents of the bill claim that it is necessary to set a high bar in this case to ensure that car manufacturers invest in supply chains closer to home. China is currently the main source for most components and minerals used to make such vehicles.

Automobile Manufacturers Are Critical of Bill

Automobile manufacturers have been vocal about criticizing the new legislation, according to a tax attorney in San Jose. The manufacturers claim it will essentially limit the public from embracing clean cars as an every-day option, citing too many strings attached to the tax credits. In a recent Yahoo Finance Live interview, Henrik Fisker, Chief Executive Officer of Fisker Inc. referred to the restrictions as counterproductive. He went as far as to say that he would be surprised if as many as ten vehicles in the United States qualified for the full credit. Fisker said that this legislation would ultimately provide fewer choices to American consumers.

The Alliance for Automotive Innovation, a trade group that boasts such members as General Motors, Ford, and Toyota, estimates that as much as 70 percent of the electric vehicle models on today’s current market will not be eligible for the Inflation Reduction Act tax credits because of the aforementioned restrictions.

However, General Motors and similar companies have already begun to seek out United States sourced minerals and have begun investing in mining operations in states like California to try to comply. The timeline for the completion of these projects is still several years away, though.

Rivian Ev Truck

Congressional Budget Office Analysis

The Congressional Budget Office analyzed the bill and stated that the $7,500 tax credit would only procure approximately 11,000 new electric vehicle sales in the 2023 fiscal year. When compared to the 630,000 electric vehicles sold in the United States in 2021, this number does not seem significant to some experts. Consulting with tax lawyers is the best way to determine which tax credits are best and how to make the most out of whichever credits are available.