The Inflation Reduction Act looks to accelerate the adoption of clean vehicles by reforming the related tax credits in a number of key ways. Specifically, the bill does the following.
- Eliminates the 200,000 clean vehicles sold quota per manufacturer.
- Previously, Tesla, GM, and Toyota were all over the 200,000 vehicle threshold and thus ineligible for the tax credit.
- Preserves the existing up to $7,500 tax credit for new qualified vehicles including electric, plug-in hybrids, and hydrogen fuel cell vehicles.
- This credit is reduced or eliminated if a certain percent of the critical minerals used in the battery are not extracted or processed in a county with which the United States has a free trade agreement or recycled in North America. As of January 1, 2024, at least 40% of the critical minerals must meet the above definition with this percent climbing to 80% by 2026.
- Establishes an $80,000 price cap for vans, SUVs, and pickup trucks and a $55,000 price cap for all other consumer vehicles.
- Establishes an income eligibility cap of $150,000 or $300,000 for joint filers.
- Creates a tax credit for previously owned clean vehicles of the lesser of $4,000 or 30% of the sale price.
- The sale price cannot exceed $25,000.
- Establishes an income eligibility cap for previously owned clean vehicles of $75,000 or $150,000 for joint filers.
- Creates a tax credit for commercial clean vehicles of up to $7,500 for vehicles weighing less than 14,000 pounds and $40,000 for vehicles greater than 14,000 pounds.
- Extends the alternative fuel refueling property credit 11 years to December 31, 2032.
The Biden Administration set a target of 50% of electric vehicle sale shares in the U.S. by 2030. Currently, EV sales make up approximately 5% of new vehicles sales. These changes will help drive the adoption of zero emission vehicles in the United States. Will they be enough to push the U.S. the other 45% by 2030? Stay tuned for Foley Hoag’s continuing zero emission vehicle series.