Electric Cars and Plug-In Hybrids That Qualify for Tax Credits Under the Inflation Reduction Act

·9 min read

The IRS released the 2022 and 2023 model-year cars that are now eligible under a new EV tax credit structure

By Keith Barry

After some initial confusion over which electric and plug-in hybrid (PHEV) vehicles would qualify for updated tax credits, the federal government today released a list of 31 vehicles that are made in North American and may qualify, depending on other restrictions.

New legislation, signed into law Tuesday, offers credits of $7,500 on some new EVs and first-ever tax credits of up to $4,000 on some used electric cars. (Learn how the new solar tax credit works.)

Consumer Reports has tested more than half of the 31 models in some version; click through the model names below for road tests and ratings. Others on the list are either upcoming EVs or plug-in hybrid versions that we haven’t purchased for evaluation, but have experienced in most cases.

The new EV credit system is part of a broad new legislative package—the Inflation Reduction Act of 2022—that is designed to address climate change, health care, and tax issues. But due to new rules about where new EVs must be built and where their batteries must be sourced, the number of new EVs that are eligible for a tax credit has shrunk from prior years.

Various provisions in the bill go into effect on different dates. As a result, some vehicles that qualify for tax credits this year may not qualify starting in 2023, and other vehicles may have their tax credit reduced or eliminated starting in 2024 based on further restrictions, such as the vehicle price cap.

“If you’re interested in an EV or a plug-in hybrid and it qualifies for a tax credit today, don’t wait, because it might not qualify next year,” says Jake Fisher, senior director of Consumer Reports’ Auto Test Center. “But if you’re considering a used EV, it is worth waiting.”

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) released the list of EVs today, along with some clarifications to commonly asked questions related to the legislation.

The new information doesn’t answer every question about which vehicles will be eligible, but it does offer additional guidance for buyers.

Key Provisions in the Inflation Reduction Act

This legislation ...

  • Takes away the 200,000 vehicle cap on tax credits that made EVs and plug-in hybrids from Tesla, GM, and Toyota ineligible for tax credits.

  • Does away with today’s tax credits for pricey EVs—such as the GMC Hummer EV, Lucid Air, and Tesla Model S and Model X. 

  • Eliminates tax credits for vehicles not assembled in North America, including the BMW i4, Hyundai Ioniq 5, Kia EV6, Subaru Solterra, and Toyota bZ4X.

  • Adds an annual adjusted gross income cap for buyers of $150,000 for single tax filers, $225,000 for those who file as head of household, and $300,000 for married couples filing jointly.

The bill also will restrict the full tax credit on new EVs to vehicles with battery minerals sourced from countries that the U.S. has a free trade agreement with or that are recycled in North America, and with battery components sourced from North America. Starting in 2024, if any minerals or components are sourced from “foreign entities of concern,” including China or Russia, the vehicle will not qualify for any tax credit. A 2022 analysis of the EV supply chain from the International Energy Agency shows that the vast majority of minerals, components, and battery cells are currently sourced from China. This restriction doesn’t apply to used vehicles.

EVs and PHEVs That May Qualify for the Tax Credit This Year

The IRS says that these models are “potentially eligible” between Aug. 17 and Dec. 31 this year for the credit because their final assembly is in North America, but the agency warns that some models are assembled in multiple locations and therefore some individual vehicles may not qualify. Even though some of these vehicles come from European and Japanese brands, their final assembly is in the U.S. For instance, the Volvo S60 Recharge PHEV is made in South Carolina.

In addition, some vehicles that are on this list will not qualify for the tax credit after this year because they cost more than the price caps that go into effect on that date. And it still remains to be seen which of these vehicles will meet battery and component sourcing requirements. The bill calls for proposed regulations on the specifics of these rules by the end of December, which is likely to be finalized some time in 2023.

According to the IRS, the models that may now qualify for a tax credit after the Inflation Reduction Act was signed on Aug. 16, 2022, include:

2022 Audi Q5 PHEV
2022 BMW 3 Series PHEV, BMW X5 PHEV
2022 Chrysler Pacifica PHEV
2022 Ford Escape PHEV, F-150 Lightning, Mustang Mach-E, Transit Van
2022 Jeep Grand Cherokee PHEV, Wrangler 4xe PHEV
2022 Lincoln Aviator PHEV, Corsair PHEV
2022 Lucid Air
2022 Nissan Leaf
2022 Rivian R1S, R1T
2022 Volvo S60 Recharge PHEV
2023 BMW 3 Series PHEV
2023 Mercedes-Benz EQS
2023 Nissan Leaf

Vehicles That May Qualify for the Tax Credit After Dec. 31, 2022

Until 2023, an automaker’s vehicles are not eligible for a tax credit if the manufacturer has sold more than 200,000 qualifying vehicles. This is why Tesla and GM vehicles have not qualified for a federal tax credit for several years. Toyota recently reached this sales milestone and would have seen its tax credits ratchet down, as well.

Because the 200,000 vehicle cap will not be lifted until 2023, those who take delivery of a Tesla or GM before that date will not be eligible for the new or old tax credit.

These are vehicles with assembly in North America whose manufacturers have already met the 200,000 vehicle sales cap and therefore do not yet qualify. Some of these vehicles may qualify in 2023:

2022 Tesla Model 3, Model S, Model X, Model Y (maybe not)
2023 Cadillac Lyriq
2022 GMC Hummer Pickup/SUV (maybe not)
2023 Chevrolet Bolt, Bolt EUV

The Fine Print

All the vehicles on both of these lists will still be subject to new caps on how much vehicles can cost: For SUVs, pickup trucks, and vans, the threshold is $80,000. For sedans, hatchbacks, wagons, and other vehicles, the credit cuts off at $55,000.

In other words, the Tesla Model S and Model X and the GMC Hummer probably won’t qualify, even though they’re on the Department of Energy’s initial list.

We don’t yet know how the IRS will classify certain vehicles. For example, because their prices are above $55,000, the Cadillac Lyriq and Tesla Model Y would qualify only if they are classified as SUVs and not station wagons. In addition, some vehicles may qualify only if buyers don’t choose options that bring the price over $80,000.

All these vehicles will also still have to meet both of those aforementioned battery manufacturing targets to qualify for the full tax credit, and we don’t yet know which ones will.

How do I know if a car was built in North America? 

Every window sticker includes information about where the vehicle was assembled and sources for parts content. If you’re shopping online, the unique Vehicle Identification Number (VIN) can be used to track down this information. (The VIN is printed on the window sticker and also on a plate located on the base of the windshield on the driver’s side of the vehicle, visible from outside the car.)

Before you buy an EV, you should visit the National Highway Traffic Safety Administration’s free VIN Decoder and enter the VIN for the car you plan to buy to find out where it was made.

You can also check to see whether it qualifies at IRS.gov.

Guidance on the transition period

The bill had always included a transition period for cars purchased before it was signed into law on Aug. 16. But the language surrounding the transition period was so vague that buyers with a car on order were left wondering whether their cars would qualify. Before today, some automakers—including Fisker, Lucid, and Rivian—interpreted the transition rule to mean that customers who converted their existing reservations into a “written binding contract” would qualify, while some other automakers CR spoke with said that preorders or reservations may not qualify. Some car buyers told us that dealerships they spoke with gave them conflicting or incomplete information.

Now, the IRS has offered some clarification and says that buyers who signed a contract to purchase an electric vehicle before Aug. 16 but have not yet taken possession of the vehicle may claim the credit based on the rules that were in effect before Aug. 16, 2022.

Here’s what the IRS now has to say:

“Individuals who entered into a written binding contract to purchase a new qualifying electric vehicle before August 16, 2022, but do not take possession of the vehicle until on or after August 16, 2022 (for example, because the vehicle has not been delivered), can claim the EV credit based on the rules that were in effect before the Inflation Reduction Act’s enactment.”

In other words, they can get up to a $7,500 federal tax credit as long as the manufacturer hasn’t sold more than 200,000 qualifying vehicles—so, no tax credits for Tesla or GM. If you did enter into a written binding contract, we recommend that you speak with a tax professional.

Vehicles That No Longer Qualify for a Tax Credit

Audi E-Tron
Fisker Ocean
Genesis GV60
Hyundai Ioniq 5, Ioniq 6, Kona Electric, Nexo
Jaguar I-Pace
Kia EV6, Niro Electric
Lexus RZ
Mazda MX-30
Mercedes-Benz EQB
Nissan Ariya 
Polestar 2
Subaru Solterra
Toyota bZ4X, Mirai
Volkswagen ID.4 (only 2022 models made in Germany)
Volvo C40

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