Your 2022 Guide to Maximizing the Federal EV Tax Credit

If you’re considering purchasing an electric vehicle, 2022 may be your best opportunity yet to tap into substantial savings. The long-running federal EV tax credit provides incentives to buyers of qualifying vehicles in the form of a dollar-for-dollar reduction on your tax bill – worth as much as $7,500!

However, major changes to the program take effect in 2023 that impose stricter requirements on EV assembly location and battery materials sourcing. Industry experts forecast this could eliminate the tax credit eligibility of over 70% of models that qualified this year alone.

So if you want to take full advantage of the savings while they last, read on for your 2022 guide to unlocking the maximum EV credit…

A Brief Background

Enacted in 2009 and renewed annually since, the electric vehicle tax credit aims to incentivize American consumers to go electric while boosting related domestic manufacturing capabilities.

As originally implemented, the program allows buyers to claim credits up to $7,500 based on an EV‘s battery capacity and gross vehicle weight rating. Qualifying purchases essentially reduce your tax liability by whatever amount the vehicle is eligible for.

So if you buy a Ford Mustang Mach-E in 2022 for example – stickering at $43,895 before options – you could deduct the full $7,500 off your total income tax bill for the year. Sweetening the appeal for car shoppers while accelerating EV adoption all at once.

The policy has proven enormously successful by spurring year-over-year rises in electric vehicle purchases and pushing automakers to commit nearly $500 billion toward electrification investments through 2026!

Yet some pivotal changes for 2023 will alter eligibility parameters significantly, making this year your best bet for maximum savings…

Locking In 2022 Savings Before Program Changes

While dozens of EV models across nearly every manufacturer still qualify this year, new rules phase in for 2023 regarding:

• Where EVs and their components are assembled
• Minimum levels of American-sourced battery materials
• Price and income caps for eligible recipients

These will severely limit qualifying choices starting next tax season. But you still have time to take full advantage if you act fast!

Here‘s a breakdown of what’s changing and why timing matters:

Sourcing and Assembly Requirements

The most impactful 2023 policy changes institute new requirements on EV assembly locations and component sourcing:

• Final vehicle assembly must occur in the U.S., Mexico, or Canada
• At least 40% of battery components must come from North America
• At least half of battery materials need to originate either domestically or from U.S. free-trade partners

Failure to meet the standards means losing all or part the tax credit.

The problem? Most automakers currently build EVs and source battery materials predominantly from Asia due to lower costs. So come 2023, an estimated 7 out of every 8 electric vehicles that qualified this year will lose their eligibility based on the updated rules.

That takes popular models from Ford, GM, Tesla, Nissan, Toyota, BMW, and more off the table. Unless supply chains rapidly transform, you‘ll have far fewer qualifying vehicle types to choose from by this time next year.

Price Cap Reductions

On top of the sourcing limitations, amended price caps on qualifying vehicles also take effect in 2023. Currently, the MSRP cutoffs are:

• $45,000 for cars and smaller SUVs
• $55,000 for larger vans, trucks and SUVs

But the thresholds drop next year to:

• $45,000 for all vehicle types
• $55,000 only for larger trucks and work vans

So if you‘ve had your eye on discounted EV SUVs like the Ford Mustang Mach-E or electric pickups like the Rivian R1T, their next model year versions will almost surely exceed the revised thresholds due to inflation and supply chain challenges. That eliminates any credits for you as a buyer.

Income Eligibility Limits

Finally, the income caps to qualify for EV tax credits lower substantially in 2023 compared to the current thresholds:

Under the phaseout thresholds by status, credits simply scale down above those income levels rather than eliminating outright. But either way, fewer American households will actually qualify at all based on the newly lowered barriers set for next year.

EV Models Still Fully Qualified Right Now

While the pending requirements will severely reduce the pool of eligible vehicles soon, dozens of purchases completed by December 31st, 2022 can still capitalize on the full $7,500 credits.

As of mid-2022, all models from the following major automakers remain tax credit eligible:

• Tesla
• Ford
• General Motors
• Volkswagen
• Hyundai / Kia
• Volvo
• Polestar
• Rivian
• Nissan

Additionally, many specific EV variants from BMW, Mercedes-Benz, Audi, Porsche, Subaru, Toyota, Honda, and more also qualify. Generally speaking, if the vehicle sticks under mileage thresholds and meets the current price caps based on type, you stand strongly positioned to utilize 2022 credits.

You can reference a complete listing of qualifying vehicles updated monthly directly from the IRS using this lookup tool.

Just remember that while certain lower-range Tesla, Ford, and Nissan EVs may still meet eligibility rules for 2023, most models will not due to assembly abroad and imported battery components. Don‘t expect a repeat of this wide ranging choice.

Tax Credit Impact on Effective Price

More than just lowering your eventual IRS bill, the credit also enables buyers to effectively discount a new EV‘s purchase price at the point of sale.

You‘ll still pay the full sticker amount upon buying or leasing an electric vehicle. But as a dollar-for-dollar reduction in your income tax liability, the credit essentially offsets that by up to $7,500.

So an EV priced at $50,000 with the full allowable credit factored in actually nets out to $42,500 as your final cost!

Analyzing a few top selling models proves the point:

As you can see, the tax credit carries very real power to reduce EV prices to directly rival or even beat comparable gas-powered models. But only while credit availability persists!

Recommendations to Maximize 2022 Savings

Between the strict sourcing rules, reduced price caps, and lower income limits impending in 2023, your window to claim the maximum tax credit savings could be closing very soon. In fact, some automakers like Tesla and GM have already sold enough EVs over their lifetime limits that any credits will phase out after this year.

So I strongly encourage you to take three key steps if buying new:

1. Finalize Your Purchase Before December 31st

To qualify for the present $7,500 full tax credit on purchases, you must both contract to buy and take possession of your new EV before the 2022 calendar flips.

Dealers handle paperwork requirements on their end to support your future filing. But don’t risk the credit evaporating by dragging feet into 2023!

2. Explore Lesser Known Brand Options

While most major automakers offer some qualifying choices still, smaller EV specialists like Lucid, Fisker, Canoo, Bollinger, Apterra, and more retain full eligibility beyond 2022.

So if chasing maximum credits with more brand variety interests you, go beyond just the mainstream makers while deals remain.

3. Research State & Local Incentives Too

Alongside the federal tax credit, don’t forget that state governments and even some local utilities also offer rebates, discounts, sales tax waivers, usage benefits, and other incentives toward EV purchases and ownership.

Look up what might stack on top of your potential $7,500 federal credit to further amplify savings in your area! Colorado, California, New York and others have substantial programs still.

At the end of day, I simply want to ensure you can take full advantage of available savings while they last on your favored EV make and model.

Whether upgrading from that aging gas guzzler at last, ditching oil changes for good, or finally indulging your inner tech lover, just don’t let the closing 2022 window cost you thousands by waiting too long!

Browse the options while choice abounds, then finalize your electric dreams well before New Year’s Eve. The future is electric, after all – and the road ahead promises less financial friction when you act NOW rather than later.

Let me know if any other questions come up! More than happy to help you rev up and electrify your next ride…