Car buyers have had a tough go looking for their next road warrior. Inventories are low due to supply-chain troubles, which means prices for new and used cars have skyrocketed thanks to increased demand. If you add in the gas price hikes that dominated summer news headlines and passage of the EV-friendly Inflation Reduction Act, you now have a cacophony of issues to consider when searching for a new vehicle. And that includes whether or not an electric vehicle is in your near future.
The Inflation Reduction Act extends the tax credit on new electric vehicles, including plug-in hybrids, until December 2032. The credit is worth up to $7,500, providing a hefty incentive for consumers to spring for an EV. And now used EVs that are at least two years old are eligible for a credit, too—up to $4,000 or 30% of the price of the vehicle, whichever is less. (Both new and used EVs are subject to price caps; see below.) For more detail on how this credit works, see EV Tax Credits Are Changing: What’s Ahead.
The tax credit for electric vehicle chargers has also been brought back from the dead—with revisions—and lasts until December 2032 as well.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The new rules are a sweeping change. They eliminate the eligible-vehicle cap placed on automakers on one hand while adding North American assembly-material sourcing requirements on the other. Previously, a vehicle that qualified for the tax credit would no longer be eligible if the manufacturer had hit the model’s 200,000-car limit. That is no longer the case for vehicles bought in 2023. However, there are special requirements concerning who qualifies for the credits, as well as what type of vehicles are eligible.
How to find the right EV
If you are considering purchasing an electric vehicle and you want the widest pool of available options, your safest bet is to pull the trigger sometime in 2023. The cap on the number of EVs eligible for a tax credit is eliminated, and stricter battery requirements don’t kick in until 2024.
The Inflation Reduction Act encourages automakers to source battery materials from the U.S. or other nations that have a trade agreement with the U.S. Starting in 2024, 50% of those critical materials have to fall under these sourcing rules. But that’s not going to be easy.
The battery requirement is going to be a tough hurdle to clear in 2024 if you just think of where these precious materials are mined, says Karl Brauer, executive analyst at iSeeCars.com, a used-car-shopping website. According to a recent Bank of America report, China, Russia and the Democratic Republic of Congo mine the bulk of raw materials—cobalt, lithium and nickel, for example—needed for electric-car batteries. In addition to mining, China is also at the top of the supply chain when it comes to material processing. And China and Russia are not on the U.S.’s list of friendly trade partners. Although the legislation does encourage U.S. carmakers to move battery production back home, that isn’t going to happen overnight, Brauer says.
To begin your EV search, start with the Department of Energy’s qualified vehicle list. The 2023 list hasn’t been released yet, but you’ll see which vehicles to avoid until the New Year because the current list includes the car models that have reached the manufacturing cap. After you’ve narrowed your choices, go to the dealership to test-drive the vehicles and to make note of the vehicle identification numbers (VIN) of the ones you’re interested in. From there, go back to the Department of Energy website listed above and scroll down to the VIN decoder to see if the car qualifies for the EV credit.
Compare an EV with its gas-powered equivalent and you’ll find that the EV runs roughly $10,000 more. Ten grand can buy quite a bit of gasoline, and it would take many years to offset the added cost, says Ronald Montoya, senior consumer advice editor at car-shopping site Edmunds.com. That’s where a tax credit can come in handy.
With regard to the new price caps for tax-credit eligibility, you’ll find more leeway in terms of price and selection on trucks and SUVs than on cars. Take the 2022 Volvo S60 sedan, for instance, which is on the Department of Energy’s current list. The gas-mild hybrid version of the vehicle has a starting manufacturer’s suggested retail price of $41,300, whereas the plug-in hybrid starts at $51,250. And these prices are before you decide to add options. The ultimate feature package on the plug-in hybrid, complete with a Harman Kardon premium sound system and head-up display, costs an additional $5,450, bringing the sales price to $56,700, or $1,700 above the $55,000 price cap on EV cars imposed by legislation.
Meanwhile, the Chevrolet Blazer EV, which will become available next summer, has a starting MSRP of roughly $45,000. That’s way below the $80,000 SUV price cap.
New or used—or leased?
After you have pared down your options, it’s time to decide whether you should buy or lease. Supply is tight for EVs as well as for conventional vehicles. If you don’t see the car you want on the lot, you may have to order it from the factory. Recently, the wait has been three to six months.
If you want to test the waters to see if an electric vehicle is right for you, leasing is a good option. Leasing gives you access to the newest battery technology as it emerges. As a bonus, you may also get the tax credit rolled into your lease payments—effectively lowering your overall cost. That was Brauer’s experience back in 2017.
“I was able to lease a Fiat 500e, which was an older EV, and between all the state and government incentives, my payments were $49 a month,” he says. However, leasing comes with a trade-off. If you decide you want to buy your vehicle at the end of your leasing contract, you may not get an additional EV credit. “You might still get some benefit if the dealer amortized, say, only half the credit into your lease payment. But that’s something you’d have to ask the dealer about,” says Brauer.
If you choose to buy new, remember that you are not obligated to take the tax credit at the time of purchase. And for some buyers, that may be beneficial to prevent tax-filing snafus. The tax credit is axed once your income reaches $150,000 for single taxpayers or $300,000 for married couples filing jointly. So if you take the tax credit up front, you may have to pay it back if your income increases in 2023, says certified public accountant Carl Scharf. A significant raise at your current job or a new job with a higher salary, as well as any side income you may have, could push you over the income threshold. Also, if the salesperson is not staying up to speed with the Department of Energy’s list, it’s possible that you could be buying a non-qualifying vehicle.
To play it safe, keep the purchase invoice on hand for tax-filing season. It should have the final purchase price of the vehicle as well as the VIN. Both are needed to get the credit.
Buying used is another option. However, used EVs are expensive. For example, we found a certified pre-owned 2021 Mustang MACH E Select—the starter trim level—that cost $55,950 on Ford’s website. Used EVs have to cost less than $25,000 to qualify for the tax credit, which means you’ll have a hard time finding one even if you don’t go for a muscle car. High demand for the modest 2020 Nissan Leaf, for example, is pushing the selling price close to the cut-off price for the tax credit: A quick search on Autotrader found the vehicles going for $26,500 and up.
Buying used also means you’ll inherit an older battery. How much and how fast a battery deteriorates is a big debate, but it’s a safe bet that you won’t experience the same advertised driving range that you would have if you had bought the vehicle new.
Infrastructure issues
If the biggest draw of an EV is freedom from high gas prices, note the trade-offs. The infrastructure surrounding charging stations is im-proving, but roaming the open road, away from your home charger, remains risky.
“I didn’t keep my EV after my lease was up because I got stranded too many times on longer road trips—the chargers I mapped didn’t work,” says Katrice Hinson of Chattanooga, Tenn. “Driving around town was easier once I installed my home charger, but the infrastructure is not being updated quick enough,” she adds.
Hinson leased a 2021 Audi E-Tron early in the pandemic. At the time, Volkswagen—Audi’s manufacturer—was low on inventory, so she decided to give an EV a test run. And while saving on gas wasn’t her biggest concern initially, Hinson does admit that the E-Tron was nice to have when gas prices started going up. She traded in the car for a Volkswagen Atlas Cross Sport R-line and estimates she spends $400 a month at the pump. She admits that she misses the gas-free life.
For those worried about how they are going to charge their new vehicle, factor the price of installing a home charger into your cost analysis. According to HomeAdvisor, homeowners can expect to pay, on average, $833 for a Level 1 charger or $1,300 for a Level 2 charger, including labor and materials. The Inflation Reduction Act helps on that front, too.
If you install a home EV charging station, the tax credit is 30% of the cost of hardware and installation, up to $1,000. Localities may offer subsidies on chargers or even the electricity itself for EV owners. Check out https://plugstar.com/tools/incentives for guidance based on your zip code. Or your dealer may help pay for the charger. Chevrolet, for example, offers to cover the installation of Level 2 home chargers for qualified 2022 Chevy Bolt EV and Bolt EUV buyers or those in lease agreements. (The EUV is styled more like a crossover SUV.)
When you have to charge a vehicle far from home, note that not all charging stations are created equal. Some are proprietary and work only with one brand of EV; for example, Tesla charging stations only support Tesla models. You also have to weigh how much your time is worth if it takes an hour or more to charge your vehicle. To find chargers in your area, charging networks such as PlugShare, ChargePoint and EVgo have smartphone applications that will show you where to go.
Charging on the road isn’t necessarily free. Rates for EVgo, for example, are based on location. You can pay when you get to the charger or you can sign up for an EVgo membership for reduced rates. Volta’s network of chargers offers the first two hours free. According to the Department of Transportation, charging a plug-in hybrid takes up to six hours on a Level 1 charger and two hours on a Level 2 charger.
Another caveat is potential range. It’s a little-known fact that advertised EV battery mileage is a bit misleading. Vehicle manufacturers typically recommend that you charge an EV to about 80% in order to preserve the longevity of the battery, says Montoya. GM estimates that the Blazer EV that’s coming next summer should have a range of 320 miles on a full charge. But you could get much less, especially under certain driving conditions, such as harsh winters.
“I think that’s the one thing people forget—that battery mileage is affected by climate, too,” says Brauer. That’s why many EVs offer a range-extending feature that allows you to have the climate control system start heating (or cooling) your car while it’s still plugged into your home charger. But you have to remember to enable this feature before you drive.
Worst case, you may not be able to get into your vehicle at all. Reports of frozen door handles on Tesla Model 3s circulated as early as 2019. Currently, Tesla has a winter-maintenance guide that instructs owners to use WD-40 to preemptively prevent ice buildup.
-
Tariffs Could Make Your Holiday Shopping Pricier in 2025Tax Policy Trump’s tariffs would drive prices of clothes, toys, and furniture higher, according to a new study.
-
NYC Congestion Pricing: Ghost Tax or Necessary Fee?State Taxes Drivers headed to Manhattan’s downtown district will face a new $9 toll in January.
