If you are thinking about buying a car this year, it is time to consider options that will help you get what you want while stretching your dollars. In uncertain economic times, large purchases like this can quickly turn into buyer's remorse. Thankfully, this can turn into significant savings if you choose the right type of car.
At the federal and state level, there are several tax credits and rebates for buying electric or hybrid cars as a way to encourage people to switch to more clean energy vehicles. These incentives can range from a few hundred dollars to several thousand, depending on the model and where you reside. You can get up to $7,500, based on the size of the car's battery when you file your income tax return. For some states and localities, you can save even faster because they offer rebates on the purchase price of the car, exemption from sales or use tax, or access to HOV lanes or other rewards.
According to the Internal Revenue Service (IRS), "clean vehicles" which are put into use on or after April 18, 2023, will need to comply with the critical mineral and battery component requirements, regardless of when they were bought or ordered. From this date onwards, the maximum credit of $7,500 will be divided into two parts: $3,750 for satisfying the critical mineral requirements and $3,750 for fulfilling the battery component requirements.
There are a few limitations to benefit from those advantages. Under Internal Revenue Code Section 30D, you must purchase a new qualified plug-in EV or FCV. The eligibility criteria for this credit have been modified by the Inflation Reduction Act of 2022, and the rules apply to vehicles purchased from 2023 to 2032. The credit is available to both individuals and their businesses, provided that the vehicle is purchased for personal use and used primarily in the U.S. Your modified adjusted gross income (AGI) cannot exceed $300,000 if married filing jointly or $225,000; it is limited at $150,000 for all other filers. But you can use your modified AGI from either the year of vehicle delivery or the previous year, whichever is less. The credit is nonrefundable, meaning that it cannot exceed your tax liability, and any excess credit cannot be carried forward to future tax years.
Even with those limitations, there are several benefits such as saving on a long-term basis by not spending on gas and costly car maintenance.
Happy Car Shopping!