Think you know how the $7,500 electric vehicle tax credit works? Think again. Thanks to the Biden Administration’s Inflation Reduction Act, a lot has changed with EV tax credits, and I don’t think most people—buyers, car dealers, even folks in the auto industry—have heard about these changes yet or fully understand what’s going on. The big news that I think remains too uncovered is that for the first time ever, a tax credit will exist for used EVs and plug-in hybrids, too. If you want to snag a cheap commuter that uses no gas, or very little gas, you had better know what you’re doing. And we’re here to help.
The IRA (no, not that IRA, a different one) will have major effects on how Americans build, source and buy EVs. First and foremost, for new cars to qualify for the tax credit, the EVs have to be built in North America. Sorry, Hyundai, Polestar and Subaru. Tough luck. Furthermore, those EV batteries have to be built in North America and ultimately with minerals sourced in the United States or its free-trade partners. The goal is to take EV battery and manufacturing dependence away from China, which is where things currently stand. Also, gone are the old rules that capped EV tax credits at 200,000 vehicles sold; there’s no limit now.
On the whole, I see the new law as a positive thing. It’s already spurring battery plant development plans all over the U.S., so it stands to drive American job growth by kickstarting a whole new battery development and manufacturing industry domestically. I also think revamping the old EV tax credit system was long overdue; as it stood, it excluded companies like General Motors that are planning huge EV onslaughts in the coming years but were cut out of offering incentives because they ran out of credits long ago. It is, however, a huge throat-punch to automakers who don’t (or don’t yet) have EV plants on this continent. A bunch of prospective Ioniq 5 buyers are probably looking at alternatives right now.
The law also has serious roadblocks to implementation. For one, requiring batteries be built in North America and that their minerals be sourced here has thrown the whole industry into a tailspin, because that kind of thing takes years to set up. The law went into effect in August and much of the provisions start Jan. 1; there was no universe where automakers could say “Yep, we set up a whole mining and battery cell supply chain in just four months. We did it, Joe.” That was never going to happen and I don’t know how the federal government ever thought it could be. This is why the U.S. Treasury Department has punted on that rule for a while, and I would put money on the feds pushing things back even further in 2023.
For now, let’s focus on the used market because that hasn’t gotten a ton of attention yet. The IRA has a ton of climate and energy provisions, so including used EVs in the tax credit scheme is a way to lower tailpipe emissions from cars and get more people hooked on electric cars and plug-in hybrids. The new law could mean a big boost for anyone wanting an affordable, older EV or a gas-sipping plug-in hybrid—sort of. These new rules aren’t perfect, either. Far from it. But if you qualify, find the right car and get a little lucky, you could land a great commuter car next year with a sizable discount.
Here’s how it works. Starting Jan. 1, if you’re shopping for a used EV or a plug-in hybrid, you’re eligible for federal tax credits of up to $4,000 or 30 percent of the sales price, whichever is lower. (Obviously, we’re talking about U.S.-market car sales, so if you’re an international reader of The Autopian, I have nothing for you today.)
Sounds great, right? Sure, but here are the stipulations:
- The vehicle has to be at least two years old.
- There are no battery sourcing requirements, unlike what will be in place for new EVs.
- The vehicle must be sold through a dealership, so no, this doesn’t help you buy something rad off Craiglist. (That was, like, the first question we had too.)
- The dealership rule means this will probably be limited to recent, normal cars, not something like a BMW 1602 Elektro-Antrieb that somehow fell into private sale.
- It must be bought by someone other than the original owner, so you can’t sell your own car to yourself to get the discount. Find another way to cheat on your taxes.
- This can only happen once in a vehicle’s life, and the tax credit is checked against the VIN.
- The car must weigh less than 14,000 pounds. (Insert the “used GMC Hummer EV” joke of your choice here.)
- You cannot have secured an EV tax credit in the past three years.
- The credit will be applied at the point of sale, meaning you get the price cut when you buy the car.
- The used EV tax credit is limited by income. If you’re a single-filer, you must make less than $75,000 annually to qualify; that goes up to $112,500 for a person who files as a “head of household” and joint filers are capped at $150,000.
- The used car must cost less than $25,000.
Those last two items are extremely noteworthy. Sure, $150,000 is a lot more than many American families make annually—the real median household income was $70,784 in 2021, according to the U.S. Census Bureau—but this cap will cut off a lot of folks who are probably in the prime of the EV market. And the $25,000 cap on the car’s price? That’s a real sticking point. Right now, there aren’t many used EVs or PHEVs that can be had for that cheaply, especially in our current world of sky-high used car values and gas prices.
Ivan Drury, the Director of Insights for car-buying website Edmunds.com, told The Autopian he fears that for a while, a lot of the qualifying cars will be “compliance cars“—you know, the EVs made in the 2010s usually to meet California requirements that were often quite limited on range. We forget this now in the age of crazy fast spaceships like the Kia EV6 GT, but the compliance cars made up much of the EV market for years until the legacy automakers started taking Tesla more seriously.
“It’s unrealistic to finally get some competent cars we see nowadays versus the compliance cars,” Drury said. “There’s really not that’s going to a lot that’s going to apply at that price point. We have to wait years before we see something other than the Chevy Bolt or Nissan Leaf that’s really going to play in that segment.”
Drury also added that he foresees many car dealers just baking the cost of the EV credit into their cars, meaning a $23,000 BMW i3 will now just be sold as a $27,000 BMW i3. He also worries that because of the income caps, it could create a market where prices are quite variable—one price for buyers who are above the income cap and another for those below it who qualify for the tax break.
“I wonder how they’re going to list their vehicles,” Drury said. “Are they going to assume that most people shopping are going to get the credit, or will it be that they will not be getting the credit?” Drury said.
In other words, it’s all messy and imperfect, and may not spark mass adoption of used EVs quite yet. But it’s better than nothing, and for the right buyers, there could soon be some good deals to be had out there. I’ve listed a couple of ones that aren’t compliance cars and possibly worth your attention next year.
Tesla Model 3
As of this writing, I have found one (1) Tesla Model 3 for sale under $25,000 on a nationwide search of Cars.com, and besides having 89,000 miles, it’s being sold by a private seller so it won’t qualify for the tax breaks. Bummer. But over time, more used Model 3s will trickle into used car dealerships, and they will eventually start to cross into the sub-$25,000 range like anything else. Tesla’s entry-level sport sedan boasts excellent range, the best charging network currently available and some surprisingly good driving dynamics. I’ve thoroughly enjoyed every one I’ve ever driven.
The downsides are Tesla’s proven build quality issues, which certainly don’t affect every Model 3 (all the ones I’ve tested or rented have been fine) but could have an impact on long-term reliability. I’ll leave it up to you if stuff like this turns you off to the brand; that’s a matter of personal preference. Realistically, most people will just care about how good the product is above everything else.
This one’s a very strong contender if you need a hyper-efficient commuter that doesn’t suck to drive and isn’t wholly dependent on just electricity. The Volt always kind of flew under the radar compared to other models, but I know tons of owners who swear by them. Seriously—Volt loyalty is as fierce as anything I’ve seen. A quick search of Cars.com reveals there are about 1,250 for sale nationwide under $25,000, which isn’t a ton; the Volt was never a huge seller and a lot of these already got snatched up when gas got expensive. But it’s a solid pick and a massively underrated machine in its own right.
The Bolt is probably where your mind went out of the gate, right? Yeah, me too. The Bolt’s a damn good car—when it came out it was often compared to the Model 3 because they debuted around the same time, but that’s pretty unfair. It’s like comparing a Civic to a 3 Series. The Bolt may not have the Tesla’s flash but it makes up for it in practicality and range. The older ones got 238 miles of all-electric range and newer ones have been bumped to 259 miles. I’ve always found it to be pretty fun in its own way, somewhere between a regular Golf and a GTI in terms of dynamics. Not many are available used for $25,000 or less, but that too will change over time.
Just make sure yours has had its recall fixes done for all the fires. Yes, fires. Plural. It’s unfortunate.
Toyota Prius Plug-In/Prius Prime
Yeah, it’s the butt of a billion jokes and driving one delivers the same net effect as a warm glass of milk and some Indica gummies before bedtime. But guess what, you jokers? The dirty truth is the Prius was always a good car: tough, practical and single-minded in its focus on delivering as many MPGs as possible. I don’t particularly care for driving the Prius, but I get why so many people love them and I respect what Toyota’s done with it. The EV and hybrid market today wouldn’t be what it is without this car. And with so many plug-in Prii on the used market, this is a great option for a solid deal.
I’ve seen some articles that say to qualify for the tax credit, the car’s battery must have a capacity of not less than 7 kWh. I haven’t been able to confirm this yet. If so, it would limit you to the second- or third-generation Prius Plug-In/Prime. Either way, great deal.
Get one and park it next to your tuned, 900-horsepower Challenger SRT Hellcat Redeye. Really confuse the shit out of people.
Now we’re talking. BMW’s weird i3 (and its supercar-ish cousin, the i8) looks like a concept car that escaped from an auto show floor. Looking back, this thing was ahead of its time, both with its unique design and its interior full of recycled materials. The i3 came in EV and range-extended form; the latter is the one to get, in my book. There’s a pretty decent selection of them out there under $25,000, too, so it definitely belongs on your list if it’s not already. The relatively limited range and tiny gas tank likely make it a tough option for your only car. But if you just need a backup, day-to-day commuter runabout, this is a great pick.
Hyundai Kona Electric/Kia Niro EV
Are these EV corporate cousins as sexy as their new siblings, the Ioniq 5 and the EV6? Absolutely not. Not even close. But they are cheaper. And while they’re new enough and in-demand enough to not have a huge presence in the sub-$25,000 market, that will likely change eventually, especially as more new (and more advanced) EV options hit the market. For budget EVs, both offer outstanding range and practicality—and even decent acceleration. Both will do zero to 60 mph in 6.5 seconds. I own, and have owned, slower cars than that. Though they may be a bit dated compared to what’s coming soon, they’re awesome options.
That’s just a few off the top of my head. What did I miss? Anything you’ll go for next year?
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