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Proposed Legislation Would Remove EV Tax Credit Limit

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Aug. 2, 2022—A proposed legislative package aimed at reducing the federal deficit could help automakers sell more EVs.

The Inflation Reduction Act of 2022, a proposal backed by Democrats and constructed using revived parts of the Build Back Better plan, aims to address "climate change and energy security spending that will have a direct effect on the vehicles we buy and drive," according to Car and Driver.

Part of the plan would involve removing the cap on EV tax credits automakers can offer; currently, automakers can only offer those $7,500 credits on the first 200,000 EVs they sell.

If the IRA passes — and that is a big if — credits would no longer be tied to individual automakers but instead "would continue for all qualifying EVs" through Dec. 31, 2032. It would also add a tax credit to used EVs for the first time as well, giving customers up to $4,000 or 30 percent of the vehicle's value, whichever is smaller. On both new and used vehicles, consumers would be able to get the credit immediately, either as a down payment or price reduction. 

The IRA would also place an income cap and vehicle price cap for credit eligibility — for new trucks, SUVs and vans up to $80,000 and all other vehicles up to $55,000, income caps are set at $150,000 for single filers and $300,000 for joint filers. 

For used EVs that cost up to $25,000 and are at least two years old, the income caps are set at $75,000 for single filers and $150,000 for joint filers. 

Lastly, the IRA would also require automakers to use "critical minerals" for their EV components that were either processed in North America "or a country the U.S. has a trade agreement with."

"The bill requires qualifying clean vehicles to use a minimum amount of such minerals, starting at 40 percent for vehicles put into service before January 2024, then going up by 10 percent a year until it reaches 80 percent for vehicles placed in service after December 31, 2026," according to the report. 

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