EV Tax Credit: You Have Just a Few Days Left to Get the $7,500 Amount

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The Internal Revenue Service is due to refine rules for which electric vehicles qualify for what tax credits any day now. It could result in buyers getting less of a benefit. There are still a few days left to get a higher amount, though.

If you’re buying an EV in 2023, you might want to do it now. And applying for the credit is as simple as filling out one form.

EV buyers can get a tax credit for up to $7,500 for buying a qualifying EV. That benefit, which has existed in the past, was updated and extended in the Inflation Reduction Act passed this past summer.

Buyers get the credit whether they itemize their tax deductions or take the standard deduction. “The credit is a dollar for dollar reduction of your tax liability,” explains accounting expert Robert Willens. “A deduction simply reduces your taxable income, the base on which the tax liability is computed. A credit, in terms of tax savings, is approximately three to four times more valuable than a deduction.”

To be eligible for the credit, if you are married and filing a joint return, your modified adjusted gross income, or MAGI, cannot exceed $300,000. For single taxpayers, the MAGI ceiling is $150,000. “You can use, for this purpose, the lesser of the current year’s or preceding year’s MAGI,” adds Willens.

There are other credit qualifications. The EV has to be assembled in North America. That isn’t changing.

There are requirements about the source of battery materials and batteries. The sourcing part of the credit is what is due to change. It’s taken time for the IRS and auto makers to work out the details of the EV supply chain and what percentage of battery materials come from what countries.

To start 2023, the IRS, essentially, extended the $7,500 benefit to all EVs assembled in North America that met pricing requirements. Trucks and SUVs must be priced below $80,000. Sedans and crossover-size vehicles need to be priced below $55,000.

Exactly which vehicles are going to lose part of the credit is hard to say. Battery capacity is opening and expanding in the U.S. month by month. Some vehicles with batteries sourced from China might lose half the credit.

Tesla

(ticker: TSLA) for instance, sources some of its batteries from the world’s largest battery maker:

Contemporary Amperex Technology Co Ltd

(300750.China), which is better known as CATL.

The IRS, and

Tesla
,
didn’t respond to a request for comment about the coming modifications.

To claim the credit, buyers have to file a Form 8936 with their tax returns. “The vehicle has to be placed in service after Dec. 31, 2022,” says Willens. “A vehicle is considered placed in service when the owner takes delivery of the vehicle.”

That leaves just a few days left to guarantee the higher amount.

Tesla stock is up about 55% so far this year, while the

S&P 500
and

Nasdaq Composite
are up about 3% and 13%, respectively.

Tesla shares are still down about 43% over the past 12 months. Rising interest rates have sapped some investor enthusiasm for consumer discretionary purchases that often require financing.

Tesla stock is up about 0.9% in premarket trading. S&P 500 and

Dow Jones Industrial Average
futures are both up about 0.5%

Write to Al Root at allen.root@dowjones.com