Inflation Reduction Act: Whip Inflation Now By Pocketing $7,500 After You Buy a New EV

How do you get a cranky, not-very-environmentally minded Democratic-in-name-only Senator who owns stock in fossil-fuel companies and depends on coal miners to get re-elected to vote on a bill that will battle climate change? You call it something like “inflation reduction” and maybe behind the scenes, announce you have photos of him in a compromising position with a plate of thinly sliced Virginia ham.

Whatever happened, this week held a pleasant surprise for EV drivers with the announcement of the “Inflation Reduction Act of 2022,” a new package of legislation introduced in the US Senate that will do a whole bunch of stuff, but most importantly for our readers thinking about buying a new EV, will restore the $7,500 tax credit for all new EV purchases for the foreseeable future and create a new $4,000 incentive for low-income buyers to purchase a used EV.

*Update* On August 7th, the Inflation Reduction Act was approved on a party-line vote. Most of the provisions go into effect next year.

Quick summary:

  • EV buyers will get $7,500 starting in 2023
  • Buyers must meet income guidelines to get the credit
  • Used buyers can get up to $4,000
  • The program is no longer capped by number of vehicles sold, but will end in 2032
  • The vehicles must be built in North America, and the battery materials must be from a recognized trading partner
  • Talk about this news at our Rideshare Drivers EV Facebook group

What is the Inflation Reduction Act?

The bill, which is actually a renamed and massively overhauled version of House resolution (HR) 5376—better known as “Build Back Better,” is much smaller and less ambitious than the prior version. It aims to actually decrease spending by $300 billion over 10 years (that’s the deficit reduction that got Manchin on board) by creating a minimum corporate tax rate of 15 percent, closing loopholes in other areas of the tax code, and funding the IRS so that agency can more easily audit tax cheats.

In addition to decreasing the deficit—with the goal of curbing inflation—the bill tackles a few Biden administration/Democratic Party priorities. The Affordable Care Act (“Obama Care”) gets an extension, and Medicare gets to use its bulk purchasing power to negotiate better drug prices, and caps drug co-pays to $2,000 annually.

As for the environment, the bill’s PR people call it “energy security and climate change investments.” There’s lots of money to promote low-emissions and renewable energy sources, clean up carbon emissions and even buy the USPS zero-emissions delivery vehicles. Some of it, of course, smells a bit porcine, like the $2 billion in grants and $10 billion in tax credits directed at legacy automakers to help them transition to building EVs, And of course, there’s the non-refundable (that means if they take your tax liability to zero, you won’t get a refund, even if they’re for more than you paid) tax credits for EV buyers.

Why Should I Care About the Inflation Reduction Act as a Rideshare Driver?

If you’re a rideshare driver who’s been interested in an EV but put off by the price or lack of rebates/tax credits, this Act could benefit you!

The tax credits for EVs are still $7,500, but there are many notable changes. First, the 200,000 vehicle-per-manufacturer limit is scrapped, which means Tesla, Nissan, GM and Toyota can now dip their snouts into the trough once again.

But not so fast, Toyota and Nissan: the vehicles don’t have to be union made, but they do have to be made in North America, which includes Canada, the US, Mexico, and Central America.

Additionally, starting in 2025, the battery must be made from materials extracted in the US or a nation the US has a free trade treaty with; I’m guessing it’s because of tensions with Russia and China. The percentage starts at 40 percent and ramps up to 80 percent by 2027.

Also, the tax credit will now be means tested; income must be less than $300,000 for joint filers, $225,000 for heads of households, and $150,000 for singles. And the car can’t be too fancy: the MSRP has to be under $55,000 for a car, while SUVs, vans (does that include minivans? The IRS definition isn’t really clear, but Publication 463 defines cars as weighing less than 6,000 pounds, so if the SUV or van weighs less than 6,000 pounds and clearly isn’t a sedan or hatchback or wagon it’ll probably qualify) and pickup trucks can be $80,000; that’s going to spur some creative categorizing by the manufacturers.

Interested in an electric vehicle? Check out this list of the best EVs for rideshare drivers.

These limits are doubtless in there to keep the critics from calling the plan a giveaway to wealthy luxury car buyers.

And to that end, there’s a new provision for used-car buyers. A tax credit of $4,000 will go to buyers of “clean” (“plug-in electric vehicle” will be replaced with “clean,” likely to mollify those clinging to the idea that hydrogen fuel cells are the future of energy storage) used vehicles at least two model years old and weighing less than 14,000 pounds; what constitutes “clean” seems to be an electric motor providing some motive power and a battery of at least 4 kWh; smaller batteries get less money, just as before.

A final word, one I am quite bummed out about. It’s not retroactive, folks, so start throwing things at your cat now if you, like me, bought not one but two brand-new, eligible vehicles in the last year.* The legislation will only apply to vehicles placed in service after December 31st, 2022.

So what do you think? Will this affect your vehicle-purchasing decisions? Post below, or head over to our EV Rideshare group on Facebook

-Gabe @ RSG