Motorists can soon get a $7,500 federal tax credit on the sticker price of an electric car at the dealer, instead of having to wait for a tax return.
The Biden administration has announced that starting January 1, 2024, Americans who purchase a qualifying car can save $7,500 on the price of a new EV or up to $4,000 on the upfront cost of a used EV.
The tax credit is a key element of the government’s Inflation Reduction Act – green legislation that aims to accelerate the shift to electric cars, which have historically been too expensive for the average consumer.
Ten models – including plug-in hybrid cars – are eligible for the full cash amount, while a further seven entitle buyers to $3,750.
Currently, drivers must reclaim the tax credit via a tax return; a process that can take several months.
Motorists can claim back up to $7,500 in tax credits if they buy one of these ten electric vehicles
Car dealers will then be reimbursed by the government within 72 hours of selling the car, the Ministry of Finance said.
“For the first time, the Inflation Reduction Act allows consumers to reduce the upfront cost of a clean vehicle, expanding consumer choices and helping auto dealers expand their businesses,” said Laurel Blatchford, the department’s Chief Implementation Officer of Treasury for the Inflation Reduction Act. in a statement.
“The IRS has focused on streamlining this process for auto dealers as part of its commitment to improve service and help taxpayers claim the credits for which they qualify.”
Most of the eligible cars are made by the “big three” EV automakers in the US – Ford, General Motors and Stellantis – plus Tesla and German automaker Volkswagen.
The eligibility rules are filled with complex criteria that detail how a certain percentage of battery parts must come from the US to qualify for the full $7,500 rebate.
This means that many foreign-made vehicles are not eligible for the time being.
The Chevrolet Equinox pictured is among the models eligible for the full $7,500 credits
There are also some price limits that determine whether or not an EV qualifies for the full tax benefit.
Vans, pickup trucks and SUVs with an MSRP of more than $80,000 are not eligible for the credit.
For cars, the MSRP is $55,000, but many vehicles fall within these limits anyway.
For example, a Chevrolet Bolt EV will start at around $26,500 MSRP, and the 2024 Chevrolet Equinox will cost around $30,000 when it goes on sale later this fall.
Meanwhile, the 2024 Chrysler Pacifica Hybrid starts around $52,495.
Used cars – which are defined as any previously owned vehicle that is more than two years old – have a separate tax credit of up to $4,000 or 30 percent of the sales price.
The Tesla Model 3 Performance was eligible for the full credit, but the Standard Range version is only eligible for half of that
Providing consumers with upfront subsidies could encourage more Americans to invest in an electric vehicle.
A 2022 study from George Washington University, cited by CNNfound that the vast majority of American car buyers preferred to get their money back up front, rather than having to wait to file their taxes and claim credits there.
The researchers also found that the preference was even greater for lower-income households, used vehicle buyers and those on lower budgets.
Electric cars tend to be more expensive than their gasoline counterparts, but can be cheaper to run.
According to data from Cox Automobilethe average transaction price for electric vehicles in July 2023 was $53,469, compared to $48,334 for gas vehicles.