The Inflation Reduction Act of 2022, which was signed into law on August 16, is perhaps the most significant legislation to accelerate transportation electrification in U.S. history. The Electrification Coalition (EC) has been advocating for many of the key measures included in the law for over a decade. Altogether, this is a major win for consumers and businesses, but there are challenges on the road ahead.
Watch a webinar on recent EV legislation by the Electrification Coalition and SAFE.
The light-duty electric vehicle (EV) tax credit of up to $7,500 per vehicle has been extended through 2032, which will allow millions more consumers to utilize this credit and more easily switch to an EV. The previous credit, with a cap of 200,000 vehicles per automaker, had already ended for Tesla and General Motors and would have soon ended for a few other automakers. However, other modifications, including an MSRP cap, income cap, assembly/sourcing requirements, and options to transfer the credit to a dealer at the point of sale, have been added. Some of these requirements will be phased in over the next few years.
For the first time, used EVs will be eligible for federal tax credits of up to $4,000 or 30% of the sales price, whichever is lower. The sales price must be less than $25,000 and the vehicle must be at least two years old. Income caps also apply. View our factsheet for more information.
Commercial EVs will also be eligible for federal tax credits for the first time ever, up to 30% of the sales price. For more information, view our factsheet.
As of December 2022, the 45W credit extends to commercial and tax-exempt entities, making government entities eligible to claim the credit. The credit is up to $7,500 for vehicles under 14,000 pounds and up to $40,000 for all other vehicles. Only certain vehicles are eligible for the credit, as the new law stipulates certain manufacturing and final assembly requirements. To check if a vehicle is eligible, the Alternative Fuels Data Center for the U.S. Department of Energy has a tool to determine eligibility. The tool can be found here.
The credit will be claimed as a direct payment for governments, given that there typically is not a tax burden for these entities. The entity will elect to receive the compensation on a tax filing. The IRS is still in the process of releasing further guidance on how the payment will work. Similarly, the IRS is finalizing the forms to claim the credits, so check back here or on the IRS page to learn more as information comes out.
The federal tax credit on charging equipment has been extended through 2032. For individual/residential uses, the tax credit remains unchanged at 30%, up to $1,000. For commercial uses, the tax credit Is 6% with a maximum credit of $100,000 per unit (up from $30,000 per property). The equipment must be placed in a low-income community or non-urban area.
The law allocates $3 billion for electrifying the United States Postal Service fleet, including vehicles and charging infrastructure, which the EC has strongly advocated for.
The law allocates $1 billion to states, municipalities, Indian tribes, or non-profit school transportation associations to replace class 6 and 7 heavy-duty vehicles with clean EVs. These rebates can be used for up to 100% of the costs for vehicles, infrastructure, training, and planning and technical activities to support electrification.
Several other key measures in the law, including support for EV manufacturing and supply chains, include:
Does this legislation kill the federal EV tax credit?
No. The tax credit as it previously existed had already ended for some of the most popular EV models and would soon end for models from a few other automakers. While some of the requirements in the new tax credit will lead to challenges in the coming years, extending the tax credit for another decade, through 2032, will ensure the long-term growth of the EV market in the U.S. Additionally, the incentives included in the law for manufacturing and supply chains will help automakers meet the new requirements.
What if I purchased an electric vehicle between January 1 and August 16, 2022?
Vehicles purchased before the Inflation Reduction Act was signed into law are still eligible for the previous tax credit. If you have a written contract to purchase a vehicle before August 16, but have not received it yet, you are still eligible to receive the previous credit as long as you “place it in service.”
What if I purchase an electric vehicle between August 17 and December 31, 2022?
The only change in the federal tax credit that takes place immediately is the requirement that the vehicle’s final assembly take place in North America. Other requirements, including those related to critical minerals and battery components, do not begin until the IRS guidance is complete for those sections, no later than December 31, 2022, and are phased in over the next few years.
How do I know if my vehicle is eligible for the federal tax credit?
Effective immediately, vehicles’ final assembly must be in North America to be eligible for the federal tax credit. While information is still being obtained, visit the Alternative Fuels Data Center for the most up-to-date information on which vehicles may be eligible for the tax credit. Requirements on critical minerals and battery components do not take effect until the IRS guidance on those sections is complete, no later than December 31, 2022.
Beginning in 2024, taxpayers can transfer their credit to a dealer to receive it at the point of sale, but what about vehicles bought directly from a manufacturer?
The text does not say that the seller must be a franchised dealer and only says that the seller must be licensed to sell vehicles in a state, though necessarily the state where the sale takes place. The taxpayer should be able to transfer the credit to the automaker selling the vehicle, even if it is not a franchised dealer, though the IRS guidance on this section will provide further clarity. Additionally, the taxpayer can also simply take the credit on their taxes and not transfer the credit.
This information is provided as guidance, based on our interpretation of the Inflation Reduction Act, but we recommend that you consult your tax advisor for specific questions regarding your situation.
We invite you to check out these additional resources:
Amy Malaki is the Director of Partnerships and Policy at SkyNRG and SkyNRG Americas, pioneering global leaders in sustainable aviation fuel production and supply. Prior to SkyNRG, Amy was the Associate Director for the transportation portfolio at the ClimateWorks Foundation where she developed philanthropic investment strategies to advance a sustainable, equitable and low-carbon mobility system. She also pioneered the organization’s international aviation decarbonization strategy. Prior to that she focused on Asia business development at Better Place, a Silicon Valley electric vehicle network startup. She has a B.A. in Chinese and China studies from the University of Washington and an M.A. in international policy studies (energy and environment) from Stanford University.