How the New EV Tax Credits Will Work in 2024

Are you ready to buy an new EV? You may want to wait a little bit for the new rules to come in to affect, but be aware of the risks as well.
Car salesperson showing a vehicle to a couple in a dealership showroom.
Car salesperson showing a vehicle to a couple in a dealership showroom.

How the new point-of-sale EV tax credits will work in 2024

It’s been complex to calculate EV tax credits for Electric vehicles like the Chevrolet Bolt, Tesla Model 3, Cadillac Lyriq, and Ford Mustang Mach-E. Tesla; Chevrolet; Cadillac; Ford.

In 2023 What was Happening?

  • The rules for how electric car buyers receive federal tax credits have changed.

  • The new guidelines benefit buyers who are taking the plunge to plug-in.

  • But there are caveats that EV shoppers should know.

You might want to hold off on purchasing that EV you’ve been considering for a few months — but there’s a catch.

The Good News: Beginning January 2024, federal electric vehicle credits, both new and used, can be used as a discount or rebate at the point of sale.

What makes it different from what has been available this year?

Throughout 2023, revised EV tax credits have motivated and incentivized car shoppers to choose plug-in cars.

Nevertheless, individuals purchasing either a new or pre-owned electric car would have to wait for their refund, as it was utilized as a valid tax credit to offset their tax liability at the end of the year.

If you bought a new EV eligible for a credit, you would need to wait until the next tax season to have either $3,750 or the full $7,500 deducted from your owed taxes. If you bought a used plug-in vehicle that qualified for a credit of up to $4,000, you’d also have to wait. You could also only claim what you owed on your taxes.

This could pose a challenge for numerous car shoppers, particularly those in the used car market.

For example, certain secondhand shoppers may not owe $4,000 in taxes by year-end. Rather than receiving a rebate, they would forfeit the amount of the used EV tax credit they were owed if they owed less tax.

How exactly do the new rules work?

Beginning next year, buyers can transfer their EV credit to the dealer when visiting a dealership. The dealer will sell the vehicle and either deduct the discount from the car’s price or provide cash back.

This new system ensures that eligible buyers receive the full credit their vehicle is entitled to, regardless of their year-end tax liability.

The responsibility of handling the tax credits is also given to the dealers. Dealers are required to register with the IRS in order to participate, and the IRS is offering an incentive of reimbursement within 72 hours.

Waiting until next year to get their electric car is recommended by experts and resources like EnergyOne.

An important question to ask is whether they have an idea of their tax liability for 2023.

Numerous studies have consistently proven that upfront rebates and purchase prices play a more significant role for low and middle-income households compared to tax credits received at the end of the year.

Is there a catch?

The industry is anticipating updated guidelines to identify qualifying electrified vehicles for tax credits in 2024.

Various factors determine a new EV’s credit eligibility, including complex rules and criteria such as car manufacturing location, sourcing of critical minerals and battery content, presence of materials from “foreign entities of concern,” and upcoming requirements.

The future eligibility of plug-in vehicles on the current list for credits is unclear. For example, in 2024, the Tesla Model 3 may only be eligible for half of the credit. Additionally, some vehicles that currently don’t qualify could potentially join the list if they abide by the guidelines.

Some eligible vehicles could experience a reduction in the full $7,500 credit this year. Some vehicles won’t be able to fully benefit during a specified period.

Shoppers should watch out for end-of-2023 EV deals that dealers might offer before they assume the tax credit responsibility. Shoppers should also be wary of dealers potentially raising used EV prices next year due to the discount rules.

For more information contact us at [email protected] or call 480.419.8210

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