Big IRS Change Means Cheaper Electric Cars: Here’s What You Need to Know

Moving to point-of-sale incentives is a huge win for buyers considering an EV. Everyone in the auto sector knows that the tax credit in its current form mostly benefits more affluent buyers. From 2024, the $7,500 off a new EV purchase and $4,000 off a used EV will be applied for any qualifying model as soon as you buy, moving the US one step closer to cheaper electric cars.

- Steve Birkett, Senior EV Editor

November 2nd, 2023 – The IRS has opened registration for its Energy Credits Online portal, which allows car dealers to reclaim EV credits in the form of direct payments, opening the path to cheaper electric cars in the United States.

After registering, dealers can access the portal to enter information about EV purchases and receive payments for qualifying sales within 72 hours of submission. The existing incentives -- up to $7,500 credit for a new EV purchase and up to $4,000 for a qualifying pre-owned EV -- required the buyer to claim the credit back when filing taxes. The new system eliminates that delay and makes the full EV credits available to all qualifying buyers, regardless of their tax burden at the end of the year.

To make this a reality from day one, dealerships selling EVs must register with the IRS and gain access to the new system, which the IRS unveiled on November 1st. The Energy Credits Online Portal will allow advance payments to dealers within 72 hours, promising a smooth flow of funds and alleviating dealership cashflow concerns.

A common concern cited by consumers and analysts alike in the proposed transition to all-electric transport is the high price of electric vehicles versus comparable combustion-based equivalents. This infamous "EV premium" typically runs between $5,000 to $10,000 on many mainstream electric models, taking them off the table for budget-conscious car buyers. This IRS change slashes a large chunk of that difference from an EV's price at the time of purchase, and when combined with manufacturer discounts and state incentives, promises to make all-electric models more accessible and affordable for US buyers.

It's important to note that there are still restrictions on qualifying for these federal EV credits. Only certain models meet the requirements for assembly and battery manufacturing laid out in the Inflation Reduction Act, while income caps prevent more affluent buyers from receiving the credit.

Read our full guide to state and federal EV incentives and use the EV tax credit calculator linked in the video description to find out if you qualify and how much you could save on a potential electric vehicle purchase.

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