Please check back
If you’re thinking about buying an electric car in 2024, there’s good news and bad news: Big federal EV tax credits will be easier next year, but fewer cars will most likely qualify for the full $7,500 credits.
Tax credits are a key component of the Biden administration’s plan to boost the transition to electric cars and transportation-related carbon emissions.
But the government must also pressure corporations to create more jobs in the U. S. by demanding a domestic supply chain. These two goals can be in tension.
For car buyers, the result can be confusing. We will do everything possible to help you find your way.
Here’s a practical, undeniable explanation of how the EV Tax Credit will work in 2024, and adds why you may need to lease a car, too.
Starting in January, EV buyers will no longer want to wait until next year’s tax season to claim (and pocket) the clean vehicle tax credit.
Instead, there is a new option to get the credits in the form of a reduction as soon as the vehicle is purchased. This means that after a few documents at the dealership, the credits will normally be obtained in the form of money (or, more likely, in the form of a rebate on the vehicle’s charge) on the day of purchase.
It will go like this: First, after confirming that the sale is eligible for the tax credit, the broker will pay you the cash. If you are entitled to $7,500, the broker will credit you with that cash as if you brought it in cash.
The broker then submits the paperwork to the IRS, and the IRS reimburses you for that $7,500, indicating that the tax credits are controlled through the brokerage.
A vital component of this procedure is that, as a buyer, you will need to attest that you are below the source of income limit, that you are purchasing the vehicle for your own use, and that you are purchasing it for use in the United States. . These needs have not changed.
This source of income restriction is based on the “modified adjusted gross source of income” – your source of income after certain deductions (such as pension contributions). This is usually line 11 of your Form 1040, but you want to reload it if you have a foreign source of income or source of income from Guam or Puerto Rico.
Earning limits for new cars are as follows:
Keep in mind that adjusted gross income (AGI) is not the same as general source of income (your salary before any deductions) or taxable source of income (which is AGI minus any popular or itemized deductions).
“It’s confusing,” says Alison Flores, director of the H Tax Institute
But contributions to a 401(k), for instance, could easily mean your AGI is actually under the limit, she explains.
What if you’re not sure how much you’ll earn in 2024?You can use last year’s source of income to qualify; As long as you are below this limit in 2023 or 2024, you will be eligible.
And if you make more than you expected? If you tell the dealer you are sure you met the income cap requirement, and it turns out you were over the cap in both 2023 and 2024, then you will need to repay the IRS the $7,500 tax credit when you file your 2024 taxes. (The dealer is not involved; that’s between you and the IRS to work out.)
This is a wonderful merit of taking advantage of credits in the form of a discount: you get merits from the full credits, regardless of your tax liability.
Previously, a client had to pay at least $7,500 in taxes in a given year to get full merit for the credits. This is because the credits may reduce your tax bill to zero, but that would never result in the IRS paying you.
That functioned like an income minimum since many low- and middle-income families owe less than that in taxes. It was also just another headache for people trying to figure out how much the credit was actually worth to them.
Now, even families who don’t have any tax liability can take advantage of the tax credit, which is also a cash refund for the purchase of a vehicle.
And you don’t want to calculate your taxes upfront to be sure of how much you’ll receive.
Both fully electric and plug-in hybrid vehicles can benefit from the tax credit. To be eligible, cars will need to meet battery life and vehicle weight requirements and, more importantly, meet any of those requirements:
It’s not always obvious which vehicles get the $55,000 cap and which get the $80,000 cap; you can confirm on fueleconomy.gov.
The features can increase the value of the sticker and some cars are assembled in different places. Dealers can check to see if those requirements are met for a personal car.
But more. . .
The number of eligible cars currently changes frequently. Here’s why.
The $7,500 tax credits are two separate credits, each valued at $3,750. Vehicles can take advantage of both, only one, or neither.
To qualify, in addition to the above fundamental criteria, vehicle batteries count. This is because the fabrics used in the composition of those batteries will also need to meet the requirements of the source.
These needs are intended to inspire the auto industry to rely less on China and more on the United States for those components, for the sake of chain safety and jobs in the United States.
One of the $3,750 credits focuses on battery raw materials, meaning a certain percentage of critical minerals, such as lithium, graphite and cobalt, will have to be mined or processed in the United States or a trading partner. .
The other provision of $3,750 is for battery manufacturing: a certain percentage of battery components, such as anodes, cathodes and electrolytes, will have to be manufactured or assembled in North America.
Every year, the percentages increase and the needs are a little harder to meet. In addition, starting next year, battery parts will no longer be allowed to come from companies controlled by China.
So which cars will qualify next year?Good question. Again, you can check fueleconomy. gov for a list of eligible vehicles; However, as of the end of December, the site had not been updated for 2024.
Some adjustments are likely to be made. Tesla warns buyers that some versions of the Model 3 will see their eligibility for tax credits end after Dec. 31, and Ford believes the same goes for the Mustang Mach-E.
On the other hand, Volkswagen is “cautiously optimistic” that the Chattanooga, Tennessee-built ID.4 will remain eligible, and General Motors says it expects to keep the credit for “many” of its EVs. Nissan is still assessing the status of its Leaf.
Note: It is the time a vehicle is delivered, the time it is requested or paid for, which affects the year to which the needs apply. This means that if the Mach-E is no longer eligible in 2024, a customer who ordered the vehicle in December but selects it on January 1 will be out of luck.
If you need to rent a vehicle, you can check out everything you just read.
Vehicles leased to consumers could possibly qualify for a version of the tax credits that is much less difficult to obtain. It doesn’t require cars to be made in the U. S. , or limits on car prices or profits. So what if you need to rent a Kia EV6 from South Korea or a six-figure luxury sedan?Go to town.
The credit goes to the company leasing out the vehicle — not the person driving it — and companies aren’t required to pass the savings on to consumers.
But companies pass on the reduction in the form of a bonus that is applied at the beginning of the lease contract.
Of course, with a lease, you have mileage limits consistent with the year and you’re not paying for a vehicle that you end up owning for free and clearly. Be sure to determine if a lease meets your needs. Make sure that the reduction is really passed on to you and read the entire contract carefully.
EV leases have increased dramatically since April 2023, when many vehicles became ineligible for the purchase tax credit as the battery-sourcing restrictions kicked in.
Do new electric cars make you dizzy?
Well, if that’s the case, second-hand ones. In fact, if you buy a used EV in 2024, model year 2022 or earlier, you also get advantages from a tax credit. It is worth 30% of the Sale Price, up to $4,000.
This tax credit has a much lower source of income limit: $150,000 for a family and $75,000 for a single user. Again, this is an adjusted gross source of income, meaning that an individual’s salary would possibly be higher than that, and the user would possibly still be entitled to it.
There’s also a lower price cap: cars will have to charge less than $25,000.
Used-EV prices have been falling rapidly lately, so while availability is still pretty tight, a qualifying vehicle is easier to find now than it used to be.
A few other requirements: This will have to be the first time the car has been sold as a used vehicle since mid-2022 (that way, the IRS knows used vehicle credits are only implemented once). purchase the used vehicle from a dealership, not an individual, and that dealer will need to be registered with the IRS in order to report the sale.
Some buyers might get creative to meet this last requirement. The Caramel app, designed to make it easier to sell cars to individuals, is technically a legal dealership. The company reports that electric cars, and more particularly used electric cars, potentially eligible for the tax credit, account for an oddly high percentage of transactions.
Caramel says he plans to offer the tax credits for 2024 as an upfront discount, just as a traditional dealership would.
If you have a business, you may be interested in separate advertising tax credits for electric vehicles, which give up to $7,500 for a light vehicle and up to $40,000 for a larger vehicle, such as a delivery truck.
There are far fewer restrictions on advertising tax credits in terms of value limits or acquisition requirements. Of course, the vehicle must be used for commercial purposes.
The amount of credits depends on the purchase value of the vehicle: more details here.
And for a single vehicle, you can claim the Clean Vehicle Tax Credit or the Commercial Vehicle Tax Credit, or both.
To learn more about how we use your information, please read our Privacy Policy.