Electric cars are pretty expensive, though some of the cost can be offset by the $7,500 federal tax credit. Unfortunately, the credit did have its limits, and any automaker that got too popular stopped being eligible. Emphasis on “did," because a Senate deal has been struck that will see that credit extended (via Bloomberg (opens in new tab)).
Senate Majority leader Chuck Schumer and Senator Joe Manchin have struck a deal that ends a deadlock on the Biden Administration's climate plan — which will see $369 billion spent on climate and energy spending. Part of this plan extends the federal EV tax credit and means it will apply to “clean cars” that were previously ineligible.
The terms of the old tax credit had a hard 200,000 vehicle limit. This meant that once an automaker sold enough eligible vehicles, buyers stopped being able to claim up to $7,500 of the price on their taxes. So far only three automakers had hit this limit: Tesla, General Motors and Toyota, but the extension means it could return — provided their cars meet a few conditions.
The first condition is that cars have to be built with minerals that are either extracted or processed in a country that the U.S. has a free-trade agreement with. The other means the battery has to include a “large percentage” of components that are either manufactured or assembled in North America.
However, the eligibility requirements for cars has got a little stricter thanks to new price caps. The price cap for new electric cars is $55,000, while the cap for new trucks and SUVs is $80,000. So you won’t be saving $7,500 on the $120,990 Tesla Model X, but you may still see savings on the $65,990 Tesla Model Y.
Credits will also be capped to income, with a $150,000 cap for single filing tax payers and $300,000 cap for joint filers.
This means the cheapest car in the United States will be even cheaper. The Chevy Bolt, made by General Motors and thus previously ineligible, currently costs $26,595 — which includes the $995 destination charge. Now that GM cars will be eligible for the tax credit, it means the Bolt could cost as little as $19,095. It’s still a lot of money, but it’s a very big step towards making electric cars affordable for all.
But wait, there’s more
This plan goes way beyond simply lifting restrictions for popular automakers. For starters, anyone buying a car at a registered dealer will be able to claim the value of their credit at the point of sale. This means you’re essentially getting a discount when you buy the car, and won’t have to pay the full list price up front.
Secondly, this extended credit applies to used electric cars as well. Used EV buyers will be able to claim up to $4,000 off the cost of an eligible car, which is going to help make electric cars even more accessible.
Buying a used electric car can already save you thousands of dollars compared to buying new, and this extra incentive makes the prospect even more enticing.
It’s not clear whether used cars will have any extra eligibility criteria, but the credit will get a lower income cap than a new purchase. It's $75,000 for a single filing taxpayer and $150,000 for a joint filing.
Some previously-proposed tax credit extensions haven’t come to fruition, though. In the past the Biden administration suggested an additional $4,500 tax credit (opens in new tab) for EVs manufactured by unionized workers — but automakers like Tesla and Toyota objected on the grounds it would give their competitors an unfair advantage.
Likewise, there was talk of offering an extra $500 for cars with American-made batteries. Had both of those plans happened it would have seen some cars eligible for up to $12,500 in tax credits.
Regardless, the fact the existing tax credit has been extended is a huge deal. Not only will drivers be able to claim on cars that are currently ineligible, the new terms of the credit will help electric cars become more accessible to people who aren’t super rich. Considering the current state of inflation and the high cost of gasoline, that’s more important than ever.
And just wait for all the federally-funded car chargers to start popping up across the country. It’s a good time to be in the EV business.
Next: If you're looking at renting an EV, you can read our comprehensive guide on how to rent an electric car and here's everything you need to know about the new EV tax credit and how to get it.