Home » The IRS Is Finally Making Its SUV EV Tax Credits Make Some Sense

The IRS Is Finally Making Its SUV EV Tax Credits Make Some Sense

Front Passenger Side 7/8 Of The 2023 Cadillac Lyriq Driving At Dusk

What is an SUV? To car enthusiasts, it’s usually something with four-wheel-drive, low range, a longitudinal drivetrain, and at least one locking differential. To normal people, it’s usually just any vehicle with an enclosed cargo area that sits high off the ground. To the IRS, they seemingly had no idea, having classified electric crossovers as either SUVs or cars seemingly on a whim in the context of EV tax credits. However, Reuters reports that those IRS definitions are changing to make more sense. As Treasury puts it, “this change will allow crossover vehicles that share similar features to be treated consistently.”

First, a little backstory. The current crop of EV tax credits has one qualifying price cap of $55,000 for cars and a higher qualifying price cap of $80,000 for trucks, vans, and SUVs. However, sorting of crossovers into the higher or lower price caps seemed to happen on a whim. The Volkswagen ID.4 with all-wheel-drive was classified as an SUV, but the Tesla Model Y was only classified as an SUV if it had seven seats. For a more in-depth read on the subject, check out Kevin Williams’ excellent piece on this strange categorization.

Id 4

The sum of this strangeness is that many variants of EVs weren’t eligible for tax credits, and that navigating these credits was a murky endeavor for consumers. It really should have been easier, especially considering how the IRS had another government organization to turn to and copy standard off of when applying these classifications.

See, the EPA is another government agency, and it sorts vehicles into categories of cars and light trucks to determine manufacturers’ fleets’ average fuel economy, more commonly known as CAFE. These fairly lax rules let car-based vehicles that really have no business being very far off road count as light trucks, which comes with lower fuel economy standards. It’s a very flawed system, but it’s consistent, and something the IRS should’ve adopted from the start.

Mustang Mach E Gravel tax credits

Thankfully, IRS officials are seeing the error of their ways and now plan to align tax credit caps with EPA categories, removing a potential source of confusion for consumers. If everything goes according to plan, vehicles like the Cadillac Lyriq and higher trim levels of the Ford Mustang Mach-E could qualify for $7,500 tax credits at the higher price point (assuming other requirements are met), which could translate to increased sales.

There’s still a lot that can be done to make the EV tax credit process easier. Applying tax credits at the point of sale like what Canada does won’t happen until 2024, and we still have no idea what, if any, EVs will still qualify once battery material sourcing requirements take effect later this year. However, aligning EV tax credit brackets with commonly-used definitions helps, and it’s a step of progress on the rocky road to widespread EV adoption.

(Photo credits: Cadillac, Volkswagen, Ford)

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25 Responses

  1. They are hatchbacks. So the Pacer was an SUV?

    $80k limit is ridiculous, Ford & Tesla will be reversing the price cuts next week, then the following week will come the price increase.

  2. Explain to me again why we are giving bigger tax breaks to vehicles that are more harmful to the environment? Why am I paying for larger subsidies to a Cadillac SUV than to a Leaf?

    1. your not paying it, so relax a bit. Now my understanding is that automakers spend lot on early development, hence try to subsidize that cost in more expensive cars so more affluent consumers pay for that early adoption.

    2. Because fuck you, that’s why!

      Fer real, its because the corporations have lobbied for larger vehicles to not have to meet as stringent mileage goals. Its probably worth a deep dive of an article as it probably stems from something 40-50 years ago that was never repealed.

      1. For CAFE, it was because, at the time, light trucks were understood to be utilitarian work vehicles purchased principally by farmers, ranchers, and tradesmen, and it wasn’t seen as a big deal to hold them to a lesser standard given their much smaller total share of the market vs passenger cars. Automakers also argued that it was impossible to make trucks as fuel-efficient as cars while preserving towing, payload, and off-road capabilities

  3. An SUV should be defined by 4WD or AWD and 71/2 inches or more of ground clearance. You lower it you pay it back. I don’t know why the SUV class credit gets a higher price. Maybe a Biden bribe for yoga pants wearing soccer moms?
    That raises a question. Now that malls are uncool where do soccer moms go to get a buzz while the kids are at soccer practice?

    1. Italy used to have a loophole for off-roaders, allowing them to circumvent the stringent import quotas on Japanese-made vehicles. The original Suzuki Vitara (Tracker/Sidekick) was a runaway success and so the government responded by changing the definition to include a locking diff.
      The lesson is that when you make a law and people find loopholes to circumvent it, then you modify the law.

  4. Long ago I thought most states agreed that a vehicle designed to carry people was a car and a vehicle designed to carry cargo was a truck. They’re all station wagons to me.

    1. I must say, I agree.
      Traditionally it never mattered how tall the body was, or how “beefy” the drivetrain/chassis underneath was, just how many seats, doors & windows.

      Attempting to delineate cars based on their height is also pointless, especially in the context of taxation.
      Why should a subaru crosstrek sneak under the tax bracket, but an equivalent impreza doesn’t, purely because it has less ground clearance?
      Then there’s the problem of actually drawing the line. does a Jaguar I-pace count as a crossover? it doesn’t seem to have much ground clearance, the only notable thing about it is they listened to the designer and put 24″ wheels on it.
      And on the opposite end, delineating “crossovers” (a mk1 Toyota Rav4 marketing term) from “SUVs” (a mk1 Ford Bronco marketing term) also becomes difficult.
      Are the BMW X3, or BMW X5, or Rivian R1S SUVs? where is the line drawn?

    2. Speaking of station wagons, some states used to put them into their own, third, category of vehicle registration – New York used to have a special “Suburban” class license plate for wagons

  5. I actually kinda liked that the IRS was sticking to the strict actual definition that the EPA _should_ be using.

    Also, it’s high time we get rid of the split of car vs truck standards. Truck standards should be reserved for commercial vehicles.

    1. Absolutely agree about the split of car & truck standards, and it’s part (only part), of why manufacturers like to produce more truck standard based vehicles, more profit per vehicle. Any business will chase that. You want them to make more of other style vehicles? Make them have to meet the same standards with the same basic markup, which they would have to do to keep the newly compliant vehicles from costing more than its consumer value, and then they’ll reintroduce models now being discontinued. I can only hope.

  6. Now, the Star-Belly SUV’s
    Had bellies with stars.
    The Plain-Belly SUV’s
    Had none upon thars.
    Those stars weren’t so big. They were really so small
    You might think such a thing wouldn’t matter at all.
    But, because they had stars, all the Star-Belly SUV’s
    Would brag, “We’re the best kind of SUV’s on the credits.”
    With their snoots in the air, they would sniff and they’d snort
    “We’ll have nothing to do with the Plain-Belly sort!”
    And whenever they met some, when they were out walking,
    They’d drive right on past them without even talking.

    1. The Sneeches was a great book, my second favourite Seuss book after Green Eggs and Ham. Seuss really had a way of showing how stupid people can be.

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