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.
Photo: Tesla
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
Photo: Tesla
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.
Chevrolet Volt
Photo: Chevrolet
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.
Chevrolet Bolt
Photo: Chevrolet
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
Photo: Toyota
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.
BMW i3
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
Photo: Kia/Hyundai
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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I think we’ll be seeing a lot more Chevy Bolts eligible for the credit in 2024, since starting in just a few days from my post, brand new they will be around $19k best case with the new EV tax credits. So you can bet a few years used they’ll be $15k, then $4k off will make a steal at $11k!
Surprised the Volt and some of the others would qualify because it’s sort of a gray area between being a plug-in gas hybrid and an EV.
This rule is an abomination. There are so many things wrong with it and unless you’re a used car dealer you should hate it.
Every penny of this money is going into the pocket of a used car salesperson. Since it’s a point-of-sale deal, the bottom line in the finance office is still going to be whatever payment they can squeeze out of you without you walking. So it doesn’t matter if there is a tax credit or not. The market rate is the market rate.
I would love to see some economist/politician explain how a bailout for the poor downtrodden used car salespeople fights inflation.
Serious Question: Do Copart, IAAI, etc count as Dealers? I.e., can I get $4k off of the slightly wrecked Bolt/Leaf/etc that I buy from them, provided all of the other criteria are met?
Without looking it up again, I think copart only sells to dealers but has “dealers” than can act as intermediaries.
I was thinking of buying something from copart and vaguely remember that.
Like I said in an earlier comment, dealers that only do EV flipping are sure to become a thing.
It depends on the state and sometimes the lot itself. I am not a dealer and I can buy from Copart in certain states, but other states or restricted auction items require a broker.
Copart does get to sign as a dealer on titles, but I wouldn’t be surprised if they disallowed the credit on salvage titles.
This is great news for anyone looking for a low-range EV like a Nissan Leaf, Ford Focus Electric, Mitsubishi i-MiEV, or any of the others. These cars were already pretty cheap (at least compared to other EVs), and now they’re even cheaper. You can buy an i-MiEV for 10k right now from a dealership, but with the new tax credit that’s only 7k, which is pretty cheap for a less than 10y/o EV that likely has low miles since they aren’t driven much. Honestly the main issue with this is that it can only be claimed on one car once. I get the reasons for that, but that means in a few years it’s going to be really hard to find an older, cheaper EV that hasn’t already gotten the tax credit.
Well the new program isn’t perfect but it is a lot better than nothing.
Our household won’t be able to take advantage of if whenever our second car dies and get replaced by an EV. And it is fine, we can afford to buy the car workout the credit. I’d rather see less people get a bigger credit rather than giving a smaller incentive to more people. EV are slowly making their way downmarket, this will help.
I am curious to see how the used car credit will impact pricing. Yes, some dealers are going to increase prices, but if the price goes up it will go up for everyone and not everyone can take advantage of the credit, so hopefully that will help keep the dealerships in check. Besides, EVs still compete against ICE, so there is that too.
BMW X5 xDrive 45e. We bought ours in October and are still able to claim the full $7500 credit. It rides and drives like a dream, and the 30 miles of electric only range are more than enough for most driving. Going on a road trip? Just fill er up!
I also have one of those, and love it. I ordered mine last year and took delivery in November of 2021, so it’s been a bit over a year. No complaints so far.
Kinda’ kicking tires on a used G30 530e. Something about BMW and advanced electronics just isn’t quite sitting right with me though.
“the car’s battery must have a capacity of not less than 7 kWh. I haven’t been able to confirm this yet.”
Not that you need to trust me, but I can confirm this. The law says the used vehicle must conform to 30D(d)(1)(F), among other things. That particular bit requires a battery at or above 7 kilowatt hours and capable of being charged from an external source.
Noted and thank you! Which also confirms this tax break specifically applies to PHEVs, not regular hybrids.
I’ve considered an i3 more times than I can count. It’s not nearly as good a choice as it initially seems. The ridiculous price of their specialized tires and the short wear life of them eliminates a huge portion of the savings you glean from going electric.
There’s only one supplier, and prices reflect that. Tires are about thousand dollars a set online before shipping, mounting and balancing, and need replaced about every 20,000 miles. And the 20 inch tires come in summer only. There are NO winter tires available for those rims. If you have 20 inch wheels, you’ll need to find a set of 19s to mount your winter tires on.
Even though I’d love an i3, what would I shop for that’s not included above?
A 2018 Honda Clarity PHEV will be my first choice, if I can find one.
A 2018 Mitsubishi Outlander PHEV will be my second choice, again, if I can find one.
The 2013-2020 Ford Fusion Energi PHEV is my third choice, and probably the only one I’ll be able to find.
The 2013-2017 Ford C-Max Energi is what I’ll buy if I happen to stumble across one at the right price.
Oh damn, I totally forgot about the Ford Fusion PHEV. You know, I had that as a rental car for a friend’s wedding one weekend and I actually kind of loved it? Drove great and used basically no gas at all. Underrated sedan.
Yeah, actually, we have one of those in our fleet at work and it’s easily the nicest car at the shop. Looks sharp, too. I can’t see a sedan ever working for my lifestyle (both me and my partner regularly do stuff that a trunk just wouldn’t work for) but if it works for yours, they’re a great choice!
Don’t forget the e-Golf… especially the 2019 model with the better battery. I am VERY much considering one of those.
Who buys winter tires for a car with one set of wheels? You’ll need a second set of wheels whether you have 20s or 19s. You have a point about the life/cost of the tires, I wore down a set of Blizzaks in *one season*, and they weren’t cheap.
Great car: Amazing acceleration, looks elegant, superb HK stereo, fun, spacious (relatively). They are expensive for the range, and the early models had terrible degradation.
I do have an Outlander PHEV GT (top trim) with 68k miles that I’m considering selling (located in NE Iowa). My wife got promoted and she wants a Tesla, selling PHEV and Bolt. Second car would be an R53 Cooper S JCW for her very short commute. Still mulling it over.
Agree totally. Had a C-Max, regular hybrid as my gateway drug to electric. Followed up with a Clarity PHEV. Still driving that, and love it. Accord sized, and 50mpg even when not on battery. Have considered the i3 multiple times, but just haven’t pulled the trigger.
Seems like a market niche for EV only used car dealers.
I expect to see “Cash for EVs” signs January second, and one owner EVs will disappear from Craigslist.
I agree, it being at dealerships is going to be a horrible thing. We have seen (article from yesterday about dumb markup) that they cannot be trusted.
I would consider a egolf when they get below 5k.
One way to look at this is that the value of an EV traded in at the dealership has been given a boost which reduces the cost of buying and a few years later trading in EVs. So from a policy point of view it boosts the sales and market share of new EVs because they will be easier to trade in down the road which is the point (I think) . The one tax credit per life of the vehicle thing seems shortsighted sending the message that if you buy a used EV and you are stuck with it.
I never get tired of singing the praises of the BMW i3. We are on our second one, which we bought used for a mere 12K back in 2018. It was, literally, the cheapest used i3 offered by any dealer in the country. And yet, the car looks fantastic and we have had zero problems with it.
Also, we went from extended range to fully electric. If you are just going to drive it around town, you are never too far away from a charger, and the battery is so small that a full charge is fairly quick. Removing the engine substantially drops the chances of anything breaking. Plus you can fully forget about most maintenance, like changing oil, cycling the gas, etc. You just pump the tires and make sure that there is enough washer fluid 🙂
Here’s how it actually going to work. Starting Jan 1 Dealers will upcharge all <$21,000 EVs to $25,000.
“The dealership rule means this will probably be limited to recent, normal cars…”
That’s okay. I’m equally likely to buy a Nevco Gizmo with or without a tax credit.
Dem fools. Using the IRA to counter the Chinese is doomed to fail.
https://www.youtube.com/watch?v=r_rSAbYyIq0
I mean shit, even used Chevy Volts are up around $25,000 right now a lot of the time. Right before the pandemic they were running about half that price, for cars that were (at the time) three years newer and with way fewer miles on them.
I was excited about the used car tax credit at first, but when I dug into the details I was a bit disappointed. For one thing, I apparently make too much to qualify—$75,000 in this part of the country ain’t exactly rich, although in areas with lower cost of living the cap may seem more generous.
I also haven’t heard anything about these caps being inflation-adjusted, which means they’ll become less relevant over time. I think they’re pretty marginally relevant right now, so how long their shelf life will be seems questionable to me. I also don’t see why I should have to buy from a professional scumbag instead of a normal person.
Oh, well. It was almost great, but I think the Feds missed the mark ever-so-slightly and doomed this particular part of the bill from birth.
I tend to agree. It’ll hopefully be a good deal for some folks, but overall it’s not game changing.
How many times have we heard or said “The Feds missed the mark”?
Yeah. There’s a lot of that in the IRA. I think the issue is that most of the Democratic party wanted one thing, but then Joe Manchin made them water it down before he’d give them the final vote they needed. It’s still a good bill, don’t get me wrong—as a solar industry professional, I feel that the pro-PV parts of the bill will be great both for my industry and for the country as a whole—but it could’ve been better if the Dems had one or two more senators on their side. That’s politics for you, though.
I don’t see incompetence or greed as the problem (specifically as pertains to the IRA I mean, in general there’s plenty of both in Washington) so much as just the basic need for compromises to be made in order to pass legislation. It’s a little weird that they were intraparty compromises in this case, but that’s just how representative democracy works, sometimes.
Absolutely. The terms are way too restrictive in some areas.
One thing though, there are a few other ways to get a rebate on a used EV, and many are not aware of them. In Los Angeles, for instance, the LADWP does offer a rather straightforward rebate when their customers buy a used EV.
It’s wild, I picked up my 1-owner 2017 Volt LT in spring 2021 for $14,500. It had 21,000 miles on it. The same car right now is valued at around 23k for *trade in* value with the 38k miles on it now.