Don't Mess With Taxes

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I haven’t yet seen any of those holiday car commercials with big red bows atop the gifted vehicles. But is a good time to start thinking of new transportation, particularly if you’re considering an electric vehicle (EV).

That’s because under the second Trump Administration, and with the support of a Republican-led House and Senate, the $7,500 EV tax credit soon could be history.

Trump's tax credit aversion: While Donald J. Trump has vacillated between loving or hating electric vehicles, he’s more consistently been opposed to them, or at least the associated tax breaks. "Tax credits and tax incentives are not generally a very good thing," Trump told Reuters in an interview after an August campaign event in York, Pennsylvania, when asked specifically about the EV credit.

In the closing days of the presidential campaign, he also touted his commitment to fossil fuels. He promised to boost domestic oil and gas production, and has selected former GOP Representative Lee Zeldin, another fossil fuel ally, to head the Environmental Protection Agency and look into easy regulations on that energy sector industry.

Finally, Trump has a penchant for undoing laws that his predecessors enacted. In this case, that’s the EV component, among other things, in President Joe Biden’s signature environmental law, the Inflation Reduction Act.

Specific tax credit targets: Gutting the full Inflation Reduction Act will be difficult, even with the Republican’s federal election trifecta, but cherry-picking some provisions, like the EV tax break are doable.

So, if you’re interested in an auto that qualifies for the potential $7,500 tax credit, it’s time to start visiting dealerships.

For now, it’s available to individuals and businesses who purchase or lease plug-in electric light passenger vehicles and trucks. Claiming the maximum $7,500 credit depends on several factors. They include material sourcing, domestic content, and household income.

Here’s a quick overview of the current EV tax credit.

Types of EV tax credits: Actually, the $7,500 EV tax credit is just one tax break for potential buyers of these autos.

The $7,500 credit applies to the purchase of a new, qualified plug-in EV or fuel cell electric vehicle (FCV). The Inflation Reduction Act of 2022 changed the rules for this credit for vehicles purchased from 2023 to 2032.

There’s also a tax credit for 30 percent of the sale price, up to a maximum $4,000, if you buy a qualified used EV or FCV.

The great thing about a tax credit is that it reduces any tax you owe dollar-for-dollar. Note, however, that the EV/FCV tax credits are nonrefundable. The amounts can be used to reduce any tax you owe, but if you have more tax credit than tax liability, you cannot get the excess credit back as a refund.

Cash up front instead of waiting to file: But there’s another option that means you don’t have to wait until tax-filing time to make use of your EV tax credit.

EV buyers can transfer the credit to an eligible dealer for an immediate discount at the dealership on the vehicle they want, rather than waiting to file Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Plug-in Electric Vehicles) when they file their tax returns.

Essentially, the seller will apply the credit amount to the EV’s final purchase cost. The dealer then will be reimbursed the credit amount by Internal Revenue Service.

Which vehicles qualify: Then there’s the biggest factor. You must choose a vehicle that qualifies for the tax credit.

As mentioned earlier, there are lots of factors here. Battery capacity. Mineral and battery component requirements. Gross vehicle weight. Qualified manufacturer production. North American assembly.

The dealers will be able to certify that the vehicle you want qualifies. However, you can get a head start on your EV shopping by checking out the Energy Department's Office of Energy Efficiency and Renewable Energy’s FuelEconomy.gov website. It has a page where you can find EV credit-eligible new vehicles, and another for qualifying used EVs.

You also might find these items of interest:

• EV tax breaks available for new, used vehicles…for now
• Texas joins the electric vehicle fee club on Sept. 1, 2023
• Treasury issues $1B+ in point-of-sale clean vehicle tax credits

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