U.S. Treasury Updates EV Tax Credit Eligibility

The US Treasury Department recently announced updated EV tax credit guidance on the battery component and critical mineral sourcing requirements of the Inflation Reduction Act (IRA), which will result in reducing the credits available for many vehicles purchased on April 18, 2023 or later.

The IRA includes a provision that limits the $7,500 EV tax credit to vehicles that are assembled in North America. Beyond that, a certain percentage of each car’s battery components need to be built in North America, and critical minerals need to be sourced from the US or a US free trade country, with these percentages increasing every year. Each of these two requirements make up half of the credit, meaning that if a car qualifies for one but not the other, it’s eligible for $3,750 worth of federal tax credits.

The new guidance does not affect the commercial leasing provisions, which are covered in section 45W of the law. It also doesn’t change the used EV provisions in section 25E. It only applies to the new EV purchase credit, in section 30D, for cars purchased April 18 or later.

GM has stated that the Cadillac Lyriq, as well as the upcoming Equinox and Blazer EVs, will qualify for the full $7,500 credit, while the Chevy Bolt EV and Bolt EUV will qualify for “some level” of credit. Tesla has stated that the rear-wheel-drive Model 3 will have its credit “reduced” but that other models will retain the full credit. Ford says the F-150 Lightning and Lincoln Aviator PHEV will get the full $7,500 credit, while the Mach-E, E-Transit, Escape PHEV and Corsair PHEV will get $3,750.

The domestic assembly provisions caused some rankling in the international community when the bill was passed, with some foreign automakers decrying what they view as protectionist measures. To alleviate this tension, the US recently signed a free trade deal for battery minerals with Japan and is working on a similar agreement with Europe.

The Treasury has also suggested that it is still possible for foreign-assembled cars to qualify for commercial tax credits if they’re leased, an interpretation that was pushed for by Hyundai and Kia in particular.  In this case, a dealership would file for the commercial credit and presumably could pass it on to the consumer in the form of lower lease payments.

While OEMs will continue to provide some information, customers will expect their local dealers to be the experts.  The primary mechanics of the tax credits will remain the same.  For example, a consumer must be acquiring the car to use it for themselves (rather than for resale), must fall under maximum income requirements, and have a tax liability since the credits are non-refundable credits applied on their annual return (the credits are not applied at the time of sale).  Furthermore, the vehicle must be new and the dealer needs to provide information pertaining to the sale in the form of a disclosure the customer will retain for tax filing purposes.  The dealer must also make a filing at the end of the year disclosing all tax-credit related sales.

An updated fact sheet has been provided by the IRS, which is available here.

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