Getting a tax credit for buying a new electric vehicle will soon be simpler
AILSA CHANG, HOST:
So if you are thinking of getting an electric vehicle in the new year, here is some news you can use. The federal tax credit for EVs, up to $7,500, is going to get easier to access in 2024. But there is a catch. NPR's Camila Domonoske, who follows the EV industry closely, is here to explain that catch. Hey, Camila.
CAMILA DOMONOSKE, BYLINE: Hi, Ailsa.
CHANG: OK. So first, just tell us why EV tax credits are so very hot right now.
DOMONOSKE: All right. Two words for the big change that's coming - instant rebate.
DOMONOSKE: So the way tax credits normally work, you pay for something and then wait for months. And when you file your taxes next, you get to owe less money than usual.
DOMONOSKE: But starting on January 1, when you buy an EV, you'll get a new option to take that credit as cash in hand up front.
CHANG: Cha-ching (ph).
DOMONOSKE: Alison Flores from H&R Block says it's probably not literally going to be an envelope of cash.
ALISON FLORES: But essentially, that dealer will advance you the credit, and it's probably going to reduce your loan or your finance agreement or be a down payment or something like that.
DOMONOSKE: And then the IRS will pay the dealer back. So it's like the IRS gave you that credit upfront.
CHANG: The IRS pays me. When does that ever happen? OK. Why is this such a big deal?
DOMONOSKE: First, it's a lot faster, right? You don't have to wait until the next year. It also means buyers will finance a smaller sum of money, right? With interest rates pretty high right now, there's a huge difference between having to borrow all that money and get it back later versus borrowing less up front. And there's a third thing that's really important, which is it means that you can get the credit even if you don't owe much in taxes. Up until now, you needed to owe $7,500 to get $7,500. And that meant that there was basically a minimum income required to use this tax credit. And a lot of people don't pay that much in taxes. And now that doesn't matter. More people might be able to use the benefit even if they owe very little or nothing.
CHANG: OK. So this sounds pretty cool, but we did mention there's a catch. What's the bad news here?
DOMONOSKE: Fewer vehicles look like they'll qualify next year. So to qualify for the credit, vehicles have to be under a price cap. They have to be made in North America. And they also have to meet these increasingly strict requirements about where the batteries come from. And that's because these tax credits, the Biden administration is trying to address climate change. They are also trying to bring an entire battery supply chain to the U.S. in the name of jobs and reducing supply chain issues.
So all of those motivations together make this pretty complicated. Some manufacturers actually still haven't figured out yet whether they'll qualify for these credits in less than two weeks. And, of course, all of the other requirements still apply. So the buyer has to be under an income cap - $300,000 for a couple filing jointly, 150,000 for single filers. That is adjusted gross income, which can be confusing. We'll have an article on npr.org breaking down all the requirements.
CHANG: OK. Well, what about people who don't qualify or who can't afford a new EV right now?
DOMONOSKE: Yeah. If you're over the income cap or you want a vehicle that's not on the list, you might consider leasing. That's a different tax credit, which many companies have been passing along as an upfront discount already. Income caps, made-in-America requirements, those things don't apply to leased vehicles. And if new EVs are too expensive even with the rebate, you should know that there is a used EV tax credit. It's smaller, up to $4,000, and it has a lower income cap and a lower price cap. But again, it doesn't matter where the battery or the vehicle was made. And you will also be able to get that as an instant rebate starting next year.
CHANG: Not bad. That is NPR's Camila Domonoske. Thank you so much, Camila.
DOMONOSKE: Thank you. Transcript provided by NPR, Copyright NPR.
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