More EVs may qualify for 2023 tax credits thanks to a delay in the U.S. Treasury updating the rules. That’s because the Treasury must update guidance on sourcing requirements for battery materials to change which EVs can qualify for tax credits under the new Inflation Reduction Act.
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Inflation Reduction Act’s effect on EV tax credits
We wrote before about how the IRA is changing which EVs can qualify for tax credits, because this new law that attempts to encourage investment in U.S. battery and EV manufacturing has an unfortunate effect on EV tax credits. In order to qualify for the new rules, EVs must be assembled in the U.S., which is a complex process requiring many automakers to shift their global production locations back to the U.S.
That could take several years. In the meantime, many great EVs would no longer qualify for the tax credits until every piece of them is assembled in the U.S. But until the Treasury updates their guidance to match the IRA, some EVs are still squeaking in under the old guidance.
The U.S. Treasury just announced it will delay guidance regarding the sourcing requirements for battery materials for EVs to qualify for federal tax credits. That means the new requirements starting January 1, 2023, have still taken effect, but there may be a brief window of time where electric vehicle purchases in 2023 that would not fit the pending battery sourcing requirements could still qualify for some tax credits. Get shopping, and check out our list of EVs that qualify for 2023 tax credits. This list might be even longer than we thought, at least for a little while.
The hold up on EV tax credits: battery sourcing guidelines
The U.S. Senate said that it was moving forward to vote on EV tax credit reform in July 2022. One of the biggest pieces of that bill was the electric vehicle tax credit reform. What became the Inflation Reduction Act was passed in August 2022, which included the $7,500 federal EV tax credit being broken into two portions a vehicle might qualify for separately.
- – The first $3,750 of the new EV tax credit is based upon the vehicle having at least 40% of its critical battery minerals from the U.S. or countries with a free trade agreement with the U.S.
- – The second $3,750 of the new EV tax credit is based on at least 50% of the battery components of the vehicle coming from the U.S. or countries with a free trade agreement with the U.S.
The government could take until the end of the year to develop the new guidance on EV battery requirements for tax credits. The Treasury now says it needs until at least March to form these guidelines. But other portions of the IRA tax credit requirements besides the battery sourcing will still take effect in January 2023.
How you can score an EV tax credit in early 2023
What that means is that you could still get an EV federal tax credit while the Treasury is making up its mind about battery sourcing guidelines. If you purchase an EV in January or February of 2023 that otherwise fits the criteria laid out in the new IRA guidelines — meaning the EV is manufactured in the U.S. but that battery components don’t quite fit those rules — you could fit into a loophole that gives you a bigger tax credit. Limited time only, though. These rules will finish updating soon.
We expect a number of automakers to shift their operations to meet the IRA guidelines, but that can take several years to shift manufacturing operations and which factories are outfitted to produce which parts in the U.S. In the meantime, federal tax credits for EVs are either running low at automakers where they have already sold most of their allotment of EVs that qualify for tax credits, or the vehicles might not meet the new rules for a while. Get to shopping!
Fuel Economy has assembled a list of which 2023 EVs qualify for tax credits for you to check which vehicles qualify for the new federal EV tax credits, because things are getting confusing. The new rules on requiring North American assembly of EVs, caps on MSRP and annual salary still went into effect on January 1.
The U.S. Treasury has said, “the critical mineral and battery component requirements take effect only after Treasury issues that proposed rule.” But in the meantime, meaning January through at least March 1 of 2023, you might score a deal on a new EV before the pinch on tax credits begins.
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