The new bill includes a significant tax credit for electric vehicles (EVs) as part of its climate-focused initiatives.
If it comes into law, the $7,500 credit for new EVs and the $4,000 credit for used EVs could help speed up the move from gasoline to electricity.
The US Senate Democrats recently released the Inflation Reduction Act of 2022, a reconciliation bill that would help us achieve our climate goals by cutting heat-trapping emissions by 40% by 2030.
The changes in the legislation in the climate bill are substantial compared to its initial form, which consisted of $3.5 trillion in spending on healthcare, climate change, and taxes.
The new law includes roughly $700 billion in spending. This is a significant step in the right direction for the Biden administration.
Tax credit for EV
The new tax credit is a long-term solution for electric vehicle owners, giving them an extra incentive to buy these cars. The new tax credit is a long-term solution for electric vehicle owners, giving them an extra incentive to buy these cars. The $7500 pertains mainly towards purchases of new models and does not apply retroactively; The buyers of the used electric vehicles will also be eligible for $4000.
It will only be available starting in January 2023 when the law takes effect renewing again until December 31stof that same year. The credit phases out once an electric vehicle manufacturer sells 200,000 EVs.
The tax credit is designed to help reduce EV cost. The tax credit will offset the vehicle’s cost or related taxes and fees. It is also available to buyers who take out loans to finance their purchases.
The tax credit should help encourage more people to buy EVs, and the production tax credit for the manufacturers. This is important because EVs have many environmental and public health benefits. They also help reduce dependence on oil, which can improve national security.
The tax credit for electric vehicles is essential to the climate policy. The tax credit is one way we can encourage people to switch to cleaner fuels and help reduce our impact on the climate.
Highlights of the new Tax Credit for EV
The new EV tax credit will be applicable through 2032 and is now available to EV manufacturers such as Tesla and GM, who were previously ineligible.
Starting January 2023, owners of electric vehicles need to renew the electric vehicle tax credit for a decade until December 2032.
Tesla and GM (General Motors) have surpassed the 200,000-vehicle cap on the previous tax credit since 2013, and Toyota recently reached it. This is a timely revision to the credit because other manufacturers (Ford, and Nissan) were on track to surpass the cap soon.
By removing the cap at the start of 2023, all manufacturers may apply for unlimited credits if they meet the legislation’s demands. The credit may be used at the point of sale if purchased from a dealer.
As per the new requirements, the new electric vehicles must be assembled in North America and use materials and critical minerals from the US or nations with free trade agreements. These reforms will help spur domestic manufacturing and more diverse material supply chains for EVs. The majority of the supply side currently relies heavily on a single country.
The government will announce these guidelines by the end of the year, but the mineral and material guidelines won’t go into effect until 2024.
Tax credit for used clean vehicles
Drivers who want to switch from gasoline can still take advantage of the newly revamped clean vehicle tax credit for new car purchases and the used vehicle credit included in the reconciliation bill. This tax credit is essential to ensure that lower-income drivers can still transition.
Buyers of used EVs can get up to $4,000 or 30% of the vehicle’s sale price, whichever is lower. There are also price and income limits associated with this credit.
Since people typically purchase more vehicles used than new ones, this provision may significantly increase the availability of clean cars.
How is Tax Credit helping in driving EV sales?
For several reasons, tax credits play a vital role in driving EV sales in the US.
First, they provide a significant financial incentive for consumers to purchase an Electric Vehicle.
Second, they help to level the playing field between EVs and traditional gasoline-powered vehicles, making EVs more attractive to consumers.
Third, they help to build infrastructure and support for EVs, making it easier for consumers to find charging stations and other necessary amenities.
Finally, they help to create awareness and excitement about EVs, which can spur additional sales.
Transportation accounts for more than one-quarter of all US greenhouse gas emissions, and passenger cars, trucks, and SUVs account for most of those carbon emissions. Driving an EV will be critical in lowering emissions and reducing dependency on fossil fuels.
Making EVs more affordable and cheaper than gasoline vehicles will allow car buyers in the United States to switch more readily and support the promotion of clean energy. They also provide tax credits for solar panels to encourage people to adopt clean energy. Favourable government policy changes are always suitable for buyers’ sentiments.
While this tax credit isn’t the only policy required, emissions regulations and federal government policies are also critical. It is a positive move in the right direction, and it will help decrease global warming emissions so that we can avoid the worst results of climate change.
If you’re interested in an EV or a plug-in hybrid and you’re eligible for a tax credit today, do not hesitate; it may not be eligible next year. On the other hand, waiting might be a good idea if you’re considering a second-hand EV.
Frequently Asked Questions (FAQs)
A federal tax credit is a dollar-for-dollar reduction in the tax you would otherwise pay. A tax credit is a dollar-for-dollar reduction in the amount of tax you would otherwise owe if you receive a federal tax credit.
Electricity is much cheaper than fueling your car tank. So, EV charging is economical.
The cost may vary due to different electricity costs across states. However, California costs around 20 cents per Kilowatt hour (kWh). At this cost, charging an electric car battery for a 150-mile range would cost about $8.
The $7,500 credit is available for electric vehicles, plug-in hybrids, and fuel-cell vehicles.