Inflation Reduction Act and Electric Cars

Published August 15th, 2022 by JMSCapitalGroup

President Biden is expected to soon sign the Inflation Reduction Act that Congress passed last week. Though named the Inflation Reduction Act, the bill is likely to have a more obvious impact on climate-related measures, as it includes a number of tax credits on energy-saving items. CNBC’s Greg Iacurci has a good summary of potential consumer benefits from this legislation.

The most complicated area of potential consumer benefit is electric vehicle sales. There’s already an existing credit of up to $7,500 for various new electric cars, plug-in hybrids, and hydrogen fuel cell cars. The legislation extends the credit through 2032, but modifies it in several ways. In particular, there will be income limits of $300,000 per married couple (or $150,000 per individual), and cost limits per vehicle ($80,000 for vans, SUVs, and pickup trucks, and $55,000 for other vehicles). There are additional requirements for the vehicle itself, with respect to the sourcing of components and location of manufacturing—the intent is to encourage the building of supply chains that are less dependent on foreign resources, and to incentive manufacturing clean energy cars in the US. Barron’s Al Root estimates that about half of the bestselling electric vehicles in the US will qualify for the credits. Used electric vehicles can now also come with a credit of up to $4,000, but again, restrictions apply, including income restrictions, vehicle price limits, vehicle age requirements (at least 2 years old), and sale requirements (the credit only applies to the first sale of a used car).

The bill also extends and increases to 30% the tax credits for residential clean energy, which includes solar panels, and adds a new tax credit for battery storage technology. Homeowners can also receive up to $2,000 in credits for efficiency improvements via windows, doors, water heaters, heat pumps, and more. These credits are not refundable, however, so a consumer would need to have a tax liability on their annual tax return in order to claim the credit (or a tax liability on a future tax return, as the credit can be carried over to future years).

Like any bill passed by Congress, there are many rules, complications, and technicalities. The bottom line is that if you’re considering a vehicle purchase or a home improvement project, it is worth further exploration on whether the Inflation Reduction Act contains specific benefits for you.


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This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or investment strategy. This material has been prepared for informational purposes only, and is not intended to be or interpreted as a recommendation. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice.

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