Making it Easier to Get $7,500 EV Tax Credit in 2024: How the Treasury Department’s Proposal Affects Electric Vehicle Buyers
Electric vehicles (EVs) are known for their low operating costs and clean emissions, but they come with a higher upfront cost than traditional gasoline-powered cars. To encourage more people to purchase EVs and support the transition to a greener economy, the U.S. government has been offering tax credits to EV buyers since 2008. However, the current credit system has limitations that prevent many consumers from taking full advantage of it.
On Friday, the U.S. Department of the Treasury proposed a new rule that addresses these limitations and expands access to EV tax credits. This blog post will explain the proposal and its potential impact on the EV market.
The proposed rule would change how EV tax credits are applied to the purchase of new and used electric cars. Currently, the credit is based on the buyer’s federal tax liability, which means that those with lower tax bills may not receive the full credit or any credit at all.
The proposed rule would eliminate this threshold and allow all eligible buyers to receive a full tax break. This would make the credit available to a broader range of car shoppers and remove a significant barrier to EV adoption.
How Did EV Tax Credit Work And What’s Changed?
The recent IRS section 30D tax credit, originally designed to encourage plug-in vehicle adoption, has undergone significant changes. Previously tied to battery pack storage capacity, the $7,500 credit is now directly linked to domestic battery manufacturing. To qualify, there is now a requirement for a percentage of the battery to come from the US or a country with a free trade agreement, with the percentage increasing annually.
These updates, which were enacted under the 2022 Inflation Reduction Act, address several issues with the previous system. A new $4,000 credit (IRS section 25E) has been introduced for buyers of used EVs, and income and price caps have been implemented to alleviate concerns that the credit primarily benefited the wealthy.
One of the challenges with the previous tax credit system was the wait time until filing taxes to claim it. While it posed no issues for those who purchased an EV towards the end of the year, it could be less convenient for those who made their purchase in earlier months, such as February.
EV Point of Sale Rebate
What is a “point of sale” rebate? A rebate at the dealership during the purchase of the electric vehicle. Buyers prefer a rebate that’s applied at the point of sale—sometimes referred to as “cash on the hood”—to a delayed tax credit.
According to the Treasury Department, the proposed rule would also simplify the credit claiming process and reduce administrative burdens for taxpayers. Instead of claiming the credit on their tax returns, eligible buyers would receive the credit from car dealers at the point of sale.
Rebates would ultimately save the government (and taxpayers) money, and distribute incentives in a more equitable way, because incentives wouldn’t be tethered to wealth. Which would have gone a long way toward addressing issues with the current federal EV tax credit.
This would streamline the process and make it easier for consumers to understand and use the credit. Additionally, the rule would require car dealers to submit information about the credit transactions to the IRS, which would improve data collection and help monitor the program’s effectiveness.
The proposed rule would take effect on January 1, 2024, and apply to all new and used EVs purchased on or after that date. Buyers of qualifying vehicles would receive a credit of up to $7,500 for new cars and $4,000 for used cars.
The credit amount would depend on the battery capacity and other factors, but all eligible buyers would receive the full credit regardless of their tax liability.
As of January 1, 2024, the credit for a new EV ($7,500) or a used EV($4,000) can be transferred to a dealership on the condition that the full amount is deducted from the price of the EV. The dealer then electronically submits the info to the IRS to collect the rebate.
This only applies to cars bought at dealerships and not private sales. There are also conditions regarding returning the vehicle or reselling it within 30 days to avoid asbuse of the system.
What Does This Mean for EV Adoption?
The Treasury Department estimates that the proposal would increase the number of EVs sold by about 100,000 units over the next five years.
There are other signs that electric vehicle sales could be reenergized moving forward.
The EV incentive was originally conceived because electric vehicles were more expensive than ICE vehicles. Recently events have changed that. Teslas are now cheaper than the average new gas-powered car because of a series of price cuts from the OEM.
Also, Electric vehicles accounted for more than 7 percent of new cars sold in the U.S. in the first half of 2023. That’s an important milestone as the “5 percent threshold” is a key tipping point that marks the shift of new technology to mass adoption.
The proposed rule by the Treasury Department is a significant step towards making EVs more accessible and affordable for American consumers. By removing the tax liability threshold and simplifying the credit claiming process, the rule would make it easier for buyers to take advantage of this incentive and contribute to the country’s clean energy goals.
While it is not a perfect solution to all the challenges facing the EV market, the proposed rule is a positive development that deserves support and attention from policymakers, carmakers, and consumers alike. With the right policies and investments, the U.S. can accelerate its transition to a low-carbon future that benefits everyone.
Just don’t blame the Treasury when the dealers fuck it up.