The Federal EV Tax Credit Is Now A Rebate
In prior years, you needed to have a $7,500 federal tax liability in order to get the full benefit of the tax credit. There was a popular misconception that you needed to have a $7,500 tax refund coming your way, but that was inaccurate. If your total tax liability was $7,500 or higher, you were in like Flynn.
But here’s the main point. Lots of people did not have a total tax liability of $7,500. Let’s say Joe The Plumber only owed Uncle Sam $3,750. Then Joe would be eligible for a $3,750 federal tax credit and no more. The rules also prevented a taxpayer from carrying any unused tax credit forward to subsequent tax years. So poor Joe could not use the remaining tax credit the following year. The result was that the people who needed a federal tax credit to purchase an electric car got the least help from Uncle Sugar.
Now all that has changed. If our mythical plumber breaks his leg and is unable to work the entire year and therefore owes the IRS nothing in taxes, he can still waltz into his local dealer or order a Tesla online and get the full $7,500 rebate on a qualifying car. A reader actually explained it all to us recently this way:
“Check out the answer to Question 4 — What if a buyer has insufficient tax liability to fully use a transferred credit? — in Topic H – Frequently asked questions about transfer of New Clean Vehicle Credit and Previously-Owned Clean vehicles Credit.”
The result of all that is tens of millions of Americans who were largely shut out from getting any or all of the federal EV incentives are now eligible for the full amount. Have you seen any news headlines trumpeting this information? Are car dealers taking out ads to tell people there is $7,500 just waiting for them at the dealership — all they have to do is come in and buy a qualifying electric car?
No, all we hear is weeping and wailing about how nobody wants to buy an electric car and how the EV revolution is flaming out. The stupidity of auto dealers as a group is almost unbelievable. If you were in business and had a $7,500 tool available to help you sell more of your products, don’t you think you would be shouting about that from the rooftops? We know we would, yet all we hear from dealers is a big fat nothing. Unbelievable.
Tesla And Qualifying EVs
So far we have used the word “qualifying” several times. That’s because the list of electric cars that qualify for the new federal rebate/tax credit is distressingly short. But before we get into that topic further, please be aware, gentle reader, that these things can change quickly as manufacturers race to adjust their supply chains to meet the battery materials and components sourcing rules put in place by the Treasury Department. To the best of our knowledge, at this moment in time, these are the cars that qualify for all or some of the rebate.
The cars that are eligible for the full $7,500 rebate are:
The cars that are eligible for one half of the rebate — $3,750 — are:
- Rivian R1S (dual large, dual max, and quad large versions)
- Rivian R1T (dual large and quad large versions)
- Ford Escape PHEV
- Jeep Grand Cherokee PHEV 4xe
- Jeep Wrangler PHEV 4xe
- Lincoln Corsair Grand Touring PHEV
The Fine Print
The workaround to all this eligibility nonsense is to simply lease your new electric vehicle. Through some legerdemain in the rules making process, leased cars are not subject to the same battery materials and component sourcing requirements. Does that make any sense? Of course not, but federal regulations seldom do.
Also be aware that the maximum sales price of a sedan or wagon may not exceed $55,000 and the maximum sales price of an SUV or light duty truck may not exceed $80,000. For the very latest information about whether that vehicle you crave is eligible, plug its VIN number into fueleconomy.gov to get the definitive answer.
The one aspect of the rebate program we are not sure of is how the income limits apply to the rebate program. In theory, a married couple filing jointly cannot have a taxable income level higher than $300,000. There are other income limits that apply to single taxpayers as well. We presume dealers are not interested in being IRS agents. Clearly, if Jeff Bezos wants to buy a qualifying electric car, he should not be eligible to pocket the $7,500 federal rebate. If a reader has an answer to that question, we would appreciate knowing what it is.
The Takeaway
The good news is that Tesla now has simplified the process for claiming the federal EV rebate for customers who want to purchase a qualifying electric car. The not so good news is that new car shoppers now need to deal with car dealers who may not know about or understand how to implement the point of sale rebate. Those customers may have to patiently explain the process to the dealer staff. Be prepared for the “deer in the headlights” look when you mention the federal rebate.
And while we do not wish to disparage America’s hard working car dealers, some may be inclined to slip some of that federal cash into their own pockets rather than into the pockets of their customers by adding additional fees into the sales contract. The federal government has recently proposed new consumer protection rules that would limit the ability of dealers to lard their sales contracts with hidden charges.
Predictably, the dealers have screamed long and loud about big government, the bureaucratic state, the First Amendment, and an attack on free enterprise, which rather suggests the feds have touched a nerve here and there is good reason why those proposed rules should be implemented.
As with every transaction, customers are encouraged to fully understand what they are signing, ask questions, and be prepared to walk away if they feel they are being set up by an unscrupulous dealer. Caveat emptor is still the first rule of the marketplace, particularly when the the commodity being sold is a motor vehicle.
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