Starting next year, electric car buyers can get their tax credits at the time of purchase. (James D. Morgan / Getty Images)
(CNN) — People shopping for electric vehicles starting next year will be able to get a $7,500 federal tax credit off the sticker price while at the dealership, rather than having to wait months to receive their tax returns.
The changes to how car buyers can get the federal tax break on EVs — part of the Inflation Reduction Act — were announced by the Biden administration on Friday and are being rolled out to car dealerships before they take effect starting Jan. 1.
Under the new guidance, those purchasing a new electric vehicle or plug-in hybrid electric vehicle that qualifies under the Treasury Department’s guidelines can either take $7,500 off the sticker price of a new EV or $4,000 off the cost of a used EV.
“For the first time, the Inflation Reduction Act allows consumers to reduce the up-front cost of a clean vehicle, expanding consumer choices and helping car dealers expand their businesses,” said Laurel Blatchford, Treasury’s chief implementation officer for the Inflation Reduction Act, in a statement. “The IRS has focused on streamlining this process for car dealers as part of its commitment to improving service and helping taxpayers claim the credits they are eligible for.”
More than a dozen new EV models and some of their variations are eligible for all or half of the new credit. A small number of models, mostly foreign-made vehicles, are not eligible for now. Most of the eligible cars so far are made by the “big three” EV automakers in the U.S. — Ford, General Motors and Stellantis — plus Tesla and German carmaker Volkswagen.
More foreign companies are building EV factories in the U.S. in order to take advantage of the tax credits in the future.
Getting consumer subsidies up front could be an important piece of the puzzle to getting more people to buy EVs, a 2022 study from George Washington University found. Researchers surveyed more than 2,000 U.S. car buyers and found the vast majority preferred getting money back up front, rather than having to wait to file their taxes and claim credits there. The researchers also found that preference was even greater for lower-income households, buyers of used vehicles and those who had lower budgets.
The Biden administration is currently contacting dealers with information on how they register with a new federal website to eventually offer consumers up-front tax credits. Car dealers will then be reimbursed by the government within 72 hours of selling the car, according to a Treasury news release.
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