Clean Vehicle Credit Plan FAQ

Most of the Clean Vehicle program rules don’t take effect until Jan. 1, but the “made in North America” requirement kicked in on Aug. 16, the day President Biden signed the IRA.

This one requirement has eliminated tax credit eligibility for 75% of the new plug-in cars, trucks, and crossovers that could have been purchased with a tax credit incentive before Aug. 16.

Of the 65 previously qualified models — 29 EVs and 36 plug-in hybrids — only 16 met the North American assembly requirement, according to the IRS.

And that number is expected to shrink, perhaps to zero, when the new battery materials and price caps take effect Jan. 1.

That seems to be the case, at least for the first year or two of the plan.

The plan’s primary intent is to incentivize carmakers to build their EVs, plug-in hybrids, and fuel-cell electric vehicles, and their batteries, in North America.

Most major import brands have said they intend to do that, but it can take a year or more to update an existing plant for internal combustion vehicle assembly to handle electrified models as well. And it can easily take a couple of years to find the land for and build a new vehicle assembly or battery manufacturing plant.

Used EVs, PHEVs, and fuel-cell vehicles will get tax credit eligibility for the first time under the new program.

There are restrictions, though: A qualified used model can’t cost more than $25,000 and must be at least two years older than the calendar year in which it is purchased (so, a used EV bought in 2023 would have to be a 2021 model or older).

Additionally, there are income limits for purchasers: $75,000 for single filers and $150,000 for joint filers. That’s to encourage the adoption of clean vehicles in disadvantaged communities and to stop the well-to-do from snapping up used models.

The credit is 30% of the used clean vehicle’s purchase price, up to a maximum of $4,000.

The income limits for buyers of new EVs, PHEVs, and fuel-cell vehicles are fairly high and are based on adjusted taxable income for the year of the purchase or the year before, whichever is lower: $150,000 for a single filer, $300,000 for joint filers, and $225,000 for a head-of-household filer.

Price limits, based on the vehicle’s MSRP — that’s the sticker price from the factory, before taxes, fees, and anything the dealer adds — are $55,000 for qualified sedans and $80,000 for pickups, SUVs, and vans.

That’s going to exclude a number of North American-made EVs, including the GMC Hummer pickup and SUV, the initial versions of the Rivian pickup and SUV (sub-$80,000 trims are coming in a year or so), the Lucid Air sedans, and the top trims of the Ford F-150 Lightning and Chevrolet Silverado/GMC Sierra electric pickups.

In part 3 of this series, we’ll get into how the Clean Vehicle Credit plan may affect shoppers in the near future.

*This article is for informational purposes only and is not intended to substitute for professional tax advice.