The landscape of electric vehicle (EV) incentives is set to undergo both simplifications and challenges in 2024. The $7,500 EV tax credit, a crucial driver for the adoption of electric cars, is expected to see changes that may affect how eligible individuals can access this incentive. Optima Tax Relief breaks down the key points on how to claim the EV Tax Credit in 2024.
Process of Claiming the Tax Credit
An important aspect for prospective buyers to note is the shift in the timing of the financial benefit associated with the EV tax credit. Unlike the current process where consumers typically receive the credit when filing their annual tax return, the proposed changes may allow car dealers to provide this benefit at the point of sale. This means that buyers could enjoy the tax break immediately, in the form of cash, a price discount, or a down payment, making electric vehicles more financially appealing right from the start.
No Tax Liability Requirement
Another significant point of consideration is that consumers may not be required to have a tax liability to avail themselves of the credit. Traditionally, tax credits are dependent on an individual’s tax liability, but the shift in policy could mean that even those with lower or no tax liability can benefit from the EV tax credit. This inclusive approach aims to encourage a broader spectrum of buyers to embrace electric vehicles.
Applicability to New and Used EVs
The proposed changes are expected to apply to new electric vehicles and used ones. This inclusivity acknowledges the importance of promoting the adoption of electric vehicles across the entire automotive market. Buyers who opt for a brand-new electric car can be eligible for a tax credit worth up to $7,500. Those who purchase a used EV can claim up to $4,000.
Less EV Options to Choose From
While the above changes will make the tax credit more accessible to many, there are some policies that will make it more difficult to claim. Fewer new vehicles will meet the Inflation Reduction Act’s manufacturing requirements needed to claim the tax credit. For example, EVs with battery components built or assembled in a foreign entity of concern, like China and Iran, will not qualify.
Vehicle Price Threshold
On the flip side, the tax credit might become harder to obtain for buyers of more expensive electric cars. There is a cap on the vehicle price, restricting the credit to those purchasing more affordable electric models. For example, new EVs must have an MSRP of $80,000 or less for vans, SUVs, and pick-up trucks, while car MSRPs cannot exceed $55,000. Used EVs must have a sale price of $25,000 or less. This aims to ensure that the tax incentive is directed towards fostering affordability and accessibility in the EV market.
One of the significant changes revolves around income limitations. If a taxpayer earns over a certain threshold, they may not be eligible for the tax credit. Buyers will need to determine if they are eligible before claiming the credit. Claiming the credit when you are ineligible could just result in paying back the full value to the IRS.
As individuals look forward to taking advantage of the EV tax credit in 2024, it is crucial to stay informed about the evolving landscape. The proposed changes, with a focus on income limitations, vehicle price thresholds, and manufacturer-specific considerations, aim to strike a balance between promoting electric vehicle adoption and ensuring fiscal responsibility. Prospective buyers should keep a close eye on legislative developments and be prepared for a dynamic environment in the electric vehicle market.