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President Biden signed the signed the Inflation Reduction Act into law on August 16, fundamentally changing the way EV tax credits are handled. For the past few days, government agencies, auto manufacturers, the NADA, and industry news providers have been scrambling to make sense of the new law and detail the changes for new-car dealers. Key takeaways include:
Providing a little detail on each of the requirements:
The U.S. Department of Energy has provided a list of vehicles with final assembly in North America. That list is located here: https://afdc.energy.gov/laws/inflation-reduction-act. It should be noted that simply being on this list does not guarantee that the vehicle qualifies for the credit because some vehicles are built in multiple locations. The build location of a particular vehicle should be confirmed by referring to its Vehicle Identification Number (VIN) using the VIN decoder or an information label affixed to the vehicle.
The MSRP qualifications are clearly specified in the legislation:
The income thresholds are also clearly defined in the legislation:
Like the income threshold and MSRP limitations, the battery component and battery minerals production requirement does not kick in until 2023. At that time, 40% of the critical minerals used to create a vehicle's battery must be extracted or processed in the United States, or a country that has a free trade deal with the US. By 2027, that number will rise to 80% of the battery minerals. The battery component requirement calls for 50% to be manufactured or assembled in North America starting in 2023 and 60% in 2024 and 2025 with the number gradually growing to 100% in 2029.
Also, the amount of credit available for a specific vehicle depends on several factors. For the remainder of 2022, new vehicles that meet the guidelines set up in the Inflation Reduction Act receive up $7,500. Starting in 2023, a vehicle will receive $3,750 if it meets the battery minerals requirement and $3,750 if it meets the battery component requirement.
The Inflation Reduction Act also defines a new credit for some buyers who purchase a used electric vehicle of up to $4,000. However, the credit may not exceed 30% of the vehicle's sale price.
Starting Jan. 1, 2024, the federal tax credit can be assigned to the seller (new-car dealer) by the buyer, resulting in a purchase price reduction. However, prior to that date, the customer must claim the credit when filing federal taxes or assign it to the leasing company.
Keep in mind that the new law does not affect the current Illinois EV tax rebate. You can get more information on that here.
From an advertising perspective, it is advisable for dealers to follow these guidelines:
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