EV Tax Credit Changes in the Inflation Reduction Act

As part of the agreement that led to the Inflation Reduction Act (IRA), the existing Section 30D EV tax credit was substantially modified. Specifically, Senator Joe Manchin (D-WV) indicated he would not support EV tax credit language that did not seek to establish critical mineral and battery component supply chains in North America or with U.S. allies. The main purpose of this was to shift away from supply chains that rely on China and Russia. Senator Manchin also insisted on eligibility caps so the tax credit would no longer benefit wealthy Americans.

Lastly, the new law states that starting January 1, 2023, consumers may be eligible for a tax credit for used cars, businesses may be eligible for a new commercial clean vehicle credit, and manufacturers will no longer face the current 200,000 electric vehicle cap for the consumer tax credit. (GM, Toyota and Tesla had already exceeded the sales cap, and Ford was expected to reach the cap this year.)

Now that the law has been enacted, effective August 17 in order for EVs to qualify for the tax credit final assembly of the vehicle must occur in North America. The Treasury Department and the Internal Revenue Service (IRS) released guidance and FAQs regarding vehicles eligible under this new requirement. Dealers can enter a Vehicle Identification Number (VIN) into a site provided by Department of Transportation to determine such eligibility.

NADA has provided a helpful summary for dealers and more information below on the new final assembly requirements, other key requirements placed on the EV tax credit, and the effective dates. Treasury and the IRS will release additional information about EV tax credits under the IRA in the weeks ahead. NADA will continue to provide updates and clarifications as more information becomes available. WANADA is working with NADA to pursue opportunities to improve the EV tax credit and demonstrate that dealers are essential to advancing EVs and consumer adoption of this new market.

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