UPDATE: We added several models that previously did not qualify for the tax credit because the IRS had improperly categorized them as passenger cars instead of SUVs and had imposed a $55,000 MSRP limit instead of $80,000. Those include the Cadillac Lyriq, Ford Mustang Mach-E, and Tesla Model Y in five-seat configuration.
January 1, 2023 brought a new federal tax credit of up to $7,500 for US consumers who are in the market for electric vehicles.
As you are about to see, things are not that simple. The new terms introduced by the Inflation Reduction Act (IRA) limit the number of EVs that currently qualify, mainly because of local US manufacturing requirements.
The full $7,500 tax credit will be available to individuals reporting adjusted gross incomes of $150,000 or less, $225,000 for heads of households, or $300,000 for married couples filing jointly. Assuming you qualify, let's see what electric vehicles you can buy that allow you to benefit from the full $7,500 tax deduction.
Main requirements for EVs to qualify
In order to be eligible for the full tax credit, an EV must have final assembly in North America by a qualified manufacturer, a battery size of at least 7 kWh and a gross vehicle weight rating less than 14,000 pounds (6,350 kilograms).
Battery electric vans, SUVs, and trucks qualify for the revised credit if their MSRP is below $80,000, while other EVs that don't fall in the above category – mostly passenger cars – have an $55,000 MSRP limit.
The IRA has also added battery manufacturing requirements, but those haven't been enforced yet; the US Department of Treasury has delayed a decision on applying the battery guidance at least until March 2023.
With that out of the way, here's the list of electric vehicles that currently qualify for the federal tax credit, as per the Internal Revenue Service (IRS). For reasons that are explained below, the list is provisional and will most likely suffer changes in the coming weeks and months. We've also deliberately left out plug-in hybrids – yes, they also qualify for the full $7,500 tax credit.
Ford: 3 models
As you can see on the table above, besides the Ford E-Transit, F-150 Lightning and Mustang Mach-E, all the other Ford and Lincoln eligible vehicles are plug-in hybrids.
While initially the Mach-E was not classified as an SUV and was subject to a $55,000 MSRP limit, the IRS fixed that, lifting the limit to $80,000. This means the entire Mach-E lineup now qualifies for the full tax credit, and not just the base Mach-E Select and mid-range Premium trims.
As for the F-150 Lightning, only the top-of-the-range Platinum model doesn't qualify for the tax credit because its starting MSRP is way above the $80,000 limit, at almost $97,000.
General Motors: 3 models
It's no surprise that the US-made and affordable Chevrolet Bolt EV and Bolt EUV have made the list, but initially the Cadillac Lyriq did not qualify because it was not classified as an SUV. Following GM's lobbying, the US Treasury replaced the $55,000 MSRP limit with the $80,000 threshold for SUVs, trucks and vans. As a result, all 2023 Cadillac Lyriq trims now qualify for the full tax credit.
Nissan: 1 model
There are no surprises here: the entire Nissan Leaf lineup, which is made in Smyrna, Tennessee, qualifies for the full tax credit. The Nissan Ariya is made in Japan and is therefore not eligible.
Rivian: 2 models
Rivian's both consumer electric vehicles – the R1S and R1T – qualify for the full tax credit, but there's a catch. Only Dual Motor variants are priced below the $80,000 MRSP limit, but the thing is they are not on sale yet. Rivian currently builds and sells Quad Motor models, with the Dual Motor configurations to become available from fall 2023.
Tesla: 2 models
All Tesla Model 3 and Model Y variants are eligible for the full tax credit. The Model 3 RWD and Long Range made the cut from the beginning, and the Model 3 Performance now does too after Tesla's price reductions earlier this year – it currently has a starting MSRP of $53,990.
Initially, only the seven-seat Model Y AWD and Long Range trim levels qualified for the credit, as they were classified as SUVs and benefited from the $80,000 MSRP limit.
The big surprise was that the five-seat Tesla Model Y was not classified as an SUV and therefore had a $55,000 MSRP limit applied to it. Thankfully, the IRS rectified the error and now buyers can claim the $7,500 federal tax credit for both five-seat Tesla Model Y trim levels – Long Range and Performance.
For some reason, the table includes the Tesla Model Y All-Wheel Drive, a trim that is absent from the automaker's configurator. Mind you, the Model 3 RWD, which features an LFP battery pack sourced from China, may lose eligibility come April 1, 2023, when the US Treasury is expected to release the updated guidance on battery materials and manufacturing rules.
Volkswagen: 1 model
The entire Volkswagen ID.4 lineup qualifies for the tax credit, even though initially only AWD variants were classified as SUVs. Rear-wheel-drive ID.4s had a $55,000 applicable MSRP limit, but that was replaced with the $80,000 threshold.
A work in progress
As you can see, the list is quite short, but more electric vehicles will likely be added in the coming weeks and months. The IRS notes that a number of automakers have entered into written agreements to become a "qualified manufacturer" but haven't yet submitted a list of specific makes and models that are eligible.
Those manufacturers include Honda, Hyundai, Jaguar Land Rover, Kia, Mazda, Mercedes-Benz, Mitsubishi, Polestar, Porsche, Subaru, and Toyota. With the exception of Mercedes-Benz, which makes the EQS SUV in Alabama (and will also make the EQE SUV there soon), none of them currently assembles EVs in North America. Mind you, several automakers, including Honda, Hyundai, and Kia, have announced plans to build EVs on the continent in the coming years.
As for the inconsistencies in the way the IRS classifies EVs, they should be sorted out as soon as possible so that a level playing field is ensured for all automakers. This will also result in customers having a wider selection of EVs to choose from.
Source: Internal Revenue Service via Sawyer Merritt (Twitter)