Starting January 1st, 2023, individuals shopping for electric vehicles (EVs) in the United States will have the opportunity to receive a $7,500 federal tax credit directly at the dealership. This new change, announced by the Biden administration as part of the Inflation Reduction Act, aims to streamline the process and eliminate the need for buyers to wait for months to receive their tax returns.
Under this updated guidance, individuals purchasing a new electric vehicle or plug-in hybrid electric vehicle that meets the Treasury Department’s criteria can choose to deduct either $7,500 from the sticker price of a new EV or $4,000 from the cost of a used EV. Laurel Blatchford, the Treasury’s chief implementation officer for the Inflation Reduction Act, stated that this change allows consumers to reduce the upfront cost of a clean vehicle, which in turn expands consumer choices and helps car dealers expand their businesses.
Most of the eligible vehicles for this tax credit belong to major American EV automakers such as Ford, General Motors, Stellantis, Tesla, and Volkswagen. However, a small number of foreign-made vehicles are currently not eligible. Additionally, more foreign companies are expected to build EV factories in the US to take advantage of these tax credits in the future.
A study conducted by George Washington University in 2022 found that providing consumer subsidies upfront could significantly influence more people to purchase EVs. The majority of the surveyed car buyers preferred receiving money back immediately rather than having to wait to file their taxes and claim credits. This preference was particularly strong among lower-income households, used-car buyers, and those with limited budgets.
The Biden administration is actively reaching out to car dealerships to provide information on how they can register with a new federal website to offer upfront tax credits to consumers. To ensure a smooth process, the government will reimburse the car dealers within 72 hours of the vehicle sale.
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