New EV Tax Credits Require Planning to Glean the Largest Benefits

New EV Tax Credits Require Planning to Glean the Largest Benefits

October 25, 2022

If you’re in the market for an electric vehicle (EV), you’re probably already aware that the recently signed Inflation Reduction Act puts into place some new rules around EV tax credits—some of which make it harder to claim the full credit after the end of this calendar year. But with some careful financial planning, and a little bit of research, you can still offset the cost of your purchase significantly. Here’s what you need to know.

If you plan to purchase a new EV before the end of 2022, you’ll want to determine which vehicles are still eligible for the full $7,500 tax credit. Until year end, only the first 200,000 electric vehicles sold from a given manufacturer are eligible for any credit. This means that the largest EV builders—such as Tesla—are already over their limit for this year. Unfortunately, that means you have fewer options to purchase an EV in 2022 and receive the full credit. Your EV will also need to have final assembly in North America to qualify for the credit. Fortunately, the U.S. Department of Energy has put together a list of vehicles that are likely to meet that requirement. 

Beginning next year in 2023 and beyond, the 200,000-manufacturer sales limit goes away, but the manufacturer and buyer requirements to receive the full $7,500 tax credit become even more stringent. First, the vehicle will need to fall under a price cap of $80,000 for electric pickups, SUVs, and vans, and under $55,000 for all other EVs. The new law also puts into place requirements on the sourcing of minerals that fuel the all-important batteries. In 2023, 40% of battery metals like lithium must be either extracted in the U.S. or in a country with which the U.S. has a free trade agreement. This requirement goes up to 80% in 2027. In 2023, 50% of battery components will need to be made in North America, increasing to 100% by 2029.

You’ll then also need to qualify under an income cap with modified adjusted gross income (MAGI) of no more than $150,000 for single filers. As head of household, that cap goes up to $225,000, while joint filers can have MAGI as high as $300,000 and still qualify. Unfortunately, as of today, there are no EVs currently in production that will qualify for the full tax credit in 2023. Buyers will be eligible for partial credit, depending on battery size and manufacturing details. 

If you’re considering a used electric vehicle, you could qualify for some smaller tax credits after the first of the year. Beginning in 2023, used EVs will qualify for up to $4,000 in credits, or 30% of the sales price, whichever is less. But again, you’ll need to meet some income requirements, and these are less generous than if you were buying new: individual income must be no more than $75,000 or $112,500 for head of household, and $150,000 for joint filers. 

Finally, many states offer additional tax credits to buyers of electric vehicles. Thankfully, the Department of Energy maintains a state-by-state list of current incentives. You’ll want to see what additional credits you may qualify for when you’re preparing to make an EV purchase. We at Sand Hill want to make sure that our clients understand the complex tax credit situation before making any final decisions when it comes to purchasing an electric vehicle. Please keep in mind that it’s essential to discuss your options with your Wealth Manager and your tax professionals if you’re looking to maximize the EV tax credits. If you have any questions or would like to learn more, please let us know.


Sources:
U.S. Department of Energy Alternative Fuels Data Center
Internal Revenue Service
www.fueleconomy.gov
www.pcmag.com/how-to/ev-taxcredits-how-to-get-the-most-money

Articles and Commentary

Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.


Video Presentations

All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.

Recent Posts

May 6, 2024
CNBC Last Call: Market Risks | April 29, 2024
Sand Hill News
Sand Hill News
CNBC Last Call: Market Risks | April 29, 2024

Sand Hill Global Advisors Brenda Vingiello joins CNBC Last Call to share her thoughts on the current markets. This content was produced and provided by

read more
Apr 29, 2024
Moving Past the Pandemic Environment
Brenda Vingiello
Brenda Vingiello,  CFA
Moving Past the Pandemic Environment

There is a common saying that time heals almost everything. Yet, even as we embark on the fifth year since the pandemic began, most of

read more
Apr 29, 2024
The Advantages of Exit Planning: Secure Your Legacy and Maximize Your Wealth
Sara Craven
Sara Craven,  CFP®, CEPA®
The Advantages of Exit Planning: Secure Your Legacy and Maximize Your Wealth

As a Certified Exit Planning Advisor™ (CEPA), I am committed to helping my clients navigate the complex world of business transitions and secure their financial

read more

Stay up to date, receive email updates from Sand Hill directly to your inbox!