What to Know About the Electric Vehicle Tax Credit
Apr 19, 2023
Electric vehicles have been growing in popularity in recent years and with good reason. They're better for the environment, cheaper to maintain, and can save you money on gas. However, the initial cost of buying an electric vehicle (EV) is often higher than that of a traditional gas-powered vehicle. To incentivize the adoption of EVs, many countries, including the United States, offer tax credits to those who purchase them. In this blog, we'll discuss the new electric vehicle tax credit in the United States, how it works, and how it could impact the adoption of EVs in the coming years.
What is the Electric Vehicle Tax Credit?
The Electric Vehicle Tax Credit is a federal tax credit offered to individuals and businesses who purchase a qualified plug-in electric vehicle. The credit was first introduced in 2008 as part of the Energy Improvement and Extension Act and was designed to help offset the higher cost of purchasing an electric vehicle.
The amount of the credit is based on the battery capacity of the vehicle and starts at $2,500 for vehicles with a battery capacity of less than 5 kWh. For each additional kWh of battery capacity, the credit increases by $417, up to a maximum of $7,500 for vehicles with a battery capacity of 16 kWh or more. However, the credit is subject to a phase-out period once the manufacturer sells 200,000 qualifying vehicles. Once that threshold is reached, the credit begins to phase out over a period of time before eventually being eliminated.
The New Electric Vehicle Tax Credit
In late 2021, the United States Congress passed the Build Back Better Act, which includes a new electric vehicle tax credit. The new credit is designed to be more comprehensive than the previous credit, offering more incentives for the purchase of electric vehicles.
The new tax credit is worth up to $12,500 for qualifying vehicles, which is significantly higher than the previous credit. The credit is also designed to be more inclusive, allowing more individuals and businesses to qualify. Under the new credit, individuals with an income of up to $400,000 per year and joint filers with an income of up to $800,000 per year can qualify for the credit. The previous credit had income caps of $200,000 for individuals and $400,000 for joint filers.
The new credit also includes an additional $4,500 credit for vehicles that are assembled in the United States and use batteries that are also manufactured in the United States. This is designed to encourage the growth of the domestic EV market and to create more jobs in the United States.
Are Any Vehicles Exempt from the Electric Vehicle Tax Credit?
How Will the New Credit Impact the Adoption of EVs?
The new electric vehicle tax credit is a significant incentive for individuals and businesses to purchase electric vehicles. The increased credit amount and the expanded eligibility requirements mean that more people will be able to take advantage of the credit, which could lead to increased adoption of EVs.
According to a report by the National Renewable Energy Laboratory, the previous electric vehicle tax credit was successful in increasing the adoption of EVs. The report found that the credit led to an increase in EV sales of between 10% and 25%, depending on the region of the country.
The new tax credit is likely to have an even more significant impact on EV adoption, as it is more generous and inclusive than the previous credit. The additional $4,500 credit for vehicles assembled in the United States and using domestically manufactured batteries could also lead to an increase in the production of EVs in the United States, which could create more jobs and further stimulate the economy.
The increased adoption of electric vehicles has a number of benefits. EVs are better for the environment than traditional gas-powered vehicles, as they produce fewer emissions and use less fossil fuels. They also have lower operating costs, as electricity is cheaper than gasoline.
It is important to remember that tax laws vary stat by state. We always recommend checking in with your local rules and regulations before deciding to purchase an electric vehicle.
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