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Business

New 2023 EV tax incentives: How they work, which cars qualify, and where to get even more savings

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Quick facts about federal incentives for electric cars:

  • The government delayed some rules for EV tax credits until March 2023.
  • Select GM
    GM,
    +2.60%
    and Tesla
    TSLA,
    +2.47%
    electric vehicles became eligible (again) for federal tax incentives in January 2023.
  • Many electric cars do not qualify, but we help you find the ones that do.

Consumers considering an electric vehicle right now may want to weigh how tax credits on zero-emissions cars work and how they could affect any upcoming buying decisions.

The Inflation Reduction Act signed in August 2022 includes electric vehicle tax credits provisions set to reshape how Americans buy electric cars and plug-in hybrids.

Read on to learn the impact. We will tell you about the new changes to federal tax incentives for electric cars. The new tax credits can help defray the cost of buying a zero-emission vehicle when combined with state and local rebates.

How the new EV tax credits work

According to Kelley Blue Book research, a new electric car’s average transaction price came in at about $65,000 in November, nearly a 9% jump from a year ago. The industrywide average that includes gas-powered vehicles and electric cars reached about $48,900 in the same timeframe.

  • Extends $7,500 tax credit. The Inflation Reduction Act extends the current incentives of up to $7,500 in tax credits for select electric cars, plug-in hybrids, and hydrogen-powered vehicles that meet its qualifications. The federal government continues to update the list of qualifying vehicles.
  • Discount up front. In the future, it’s possible you can qualify to get your EV tax credit at the time of purchase on new vehicles, though if the dealership does not offer it immediately, you can still request the credit on your taxes.
  • Caps EV price tags. The new incentives restrict qualifying vehicles to low-emissions trucks, SUVs, and vans with manufacturer’s suggested retail prices of up to $80,000 and cars up to $55,000.
  • No limits for manufacturers. As of Jan. 1, 2023, manufacturers like GM and Tesla were no longer limited on incentives to the first 200,000 EVs sold, which was the case under the old tax credits.
  • Used electric vehicle rebate. Anyone considering a used electric car under $25,000 could obtain a new $4,000 tax credit, subject to income and other limits. To qualify, used cars must be two model years old. The vehicle also must be purchased at a dealership. The vehicle also only qualifies once in its lifetime. Purchasers of used vehicles can only qualify for one credit every three years, and to qualify, individuals must make $75,000 or less, or $112,500 for heads of households and $150,000 for joint return filers. The credit ends in 2032.
  • Income caps to qualify. The rebates are limited to individuals reporting adjusted gross incomes of $150,000 or less on taxes, $225,000 for those filing as head of household, and $300,000 for joint filers.
  • Ineligible cars become eligible. Additionally, the measure allows carmakers like Tesla and General Motors, which had run out of available credits under the old plan, to be eligible for them again in January 2023. However, many of their products would still not qualify due to car price caps.
  • New rules on manufacturing locations. To qualify for the subsidy, electric car batteries must be manufactured in the U.S., Canada, or Mexico, while the batteries’ minerals and parts must also come from North America to qualify. Cars with Chinese-made battery components would be ineligible. These rules render many current EVs ineligible. This requirement phases in over time. That means some cars eligible now could become ineligible over time unless manufacturers change their supply chains. However, the U.S. Treasury Department delayed until March the regulations that govern where battery minerals and parts must be sourced.
  • Some leased vehicles may qualify.
  • Hydrogen fuel-cell cars remain eligible. The $7,500 credit also applies to hydrogen fuel-cell cars like the Toyota Mirai or Hyundai Nexo. However, those make sense only for buyers who live near one of America’s few hydrogen refueling stations. Those stations are mostly concentrated in California. 

Learn more: What is EV, BEV, HEV, PHEV? Here’s your guide to types of electric cars

What the old EV tax credits provided

Before the Inflation Reduction Act, buyers could claim a tax credit on just the first 200,000 electric cars a manufacturer sold. That meant that the most popular models lost the credit. The incentive did not restrict income or purchase prices.

The old tax credits also applied to plug-in hybrids and fuel cell vehicles, but not used vehicles.

President Biden signed the act into law on Aug. 1, 2022. Most of its provisions kicked in on Jan. 1, 2023. That created a brief window when the law required qualifying cars to be built in North America, but the 200,000-car-per-manufacturer limit still applied. If you bought an electric car between Aug. 16, 2022, and Jan. 1, 2023, it qualified for a credit only if it was built in North America by a manufacturer that hadn’t sold 200,000 or more qualifying cars.

Tesla and General Motors’ electric car tax credits were reinstated in January. So if you have your heart set on a Tesla Model 3 or perhaps a Cadillac Lyriq, now is the time to act.

Also see: 2.1 million EVs and plug-in hybrids on U.S. roads, and here’s how much gas they’ve saved

List of 2023 electric vehicles that qualify

According to the U.S. Internal Revenue Service, this is the latest list of electric and plug-in hybrid vehicles that qualify if purchased after Jan. 1, 2023. The site notes that several manufacturers had yet to submit information on specific eligible makes and models and for users to check back for updated information.

Vehicle MSRP Limit
Audi Q5 TFSI e Quattro PHEV $80,000
BMW
BMW,
+0.07%
330e 		$55,000
BMW X5 eDrive 45e $80,000
Ford
F,
+2.69%
Escape PHEV 		$80,000
Ford E-Transit $80,000
Ford F-150 Lightning $80,000
Ford Mustang Mach-E $55,000
Lincoln Aviator Grand Touring $80,000
Lincoln Corsair Grand Touring $55,000
Chevrolet Bolt EV $55,000
Chevrolet Bolt EUV $55,000
Cadillac Lyriq $55,000
Nissan
NSANY,
+2.85%
Leaf 		$55,000
Rivian
RIVN,
-0.97%
R1S 		$80,000
Rivian R1T $80,000
Chrysler Pacifica PHEV $80,000
Jeep Wrangler 4xe $80,000
Jeep Grand Cherokee 4xe $80,000
Tesla Model 3 $55,000
Tesla Model Y 7-Seat Variant $80,000
Volkswagen
VWAGY,
+2.00%
ID.4 		$55,000
Volvo
VLVLY,
+3.20%
S60 T8 Recharge PHEV 		$55,000
State and local incentives near you

Though the federal government’s effort makes up the lion’s share of government EV discounts, some states and local governments offer incentive programs to help new car buyers afford something more efficient. These can be tax credits, rebates, reduced vehicle taxes, single-occupant carpool-lane access stickers, and exemptions from registration or inspection fees.

States like California and Connecticut offer broad support for electric vehicle buyers. However, Idaho, Kentucky, and Wyoming are among the states offering no support to individual EV buyers. The U.S. Department of Energy maintains an interactive list of state-level incentives, while Plug In America posts an interactive map of EV incentives.

Also read: What California’s ban on gas cars could mean for you—even if you don’t live there

Your electric utility may help

Lastly, it’s not just governments that can help you with the cost of a new EV. Some local electric utilities provide incentive programs to help buyers get into electric vehicles. After all, they’re among the ones that benefit when you turn your fuel dollars into electricity dollars.

Read: 3 reasons the Hyundai Ioniq 6 makes the Tesla Model 3 seem a bit boring

Some offer rebates on cars. Others offer discounts on chargers or install them free when you sign up for off-peak charging programs.

For example, the Nebraska Public Power District offers a $4,000 rebate to customers who purchase a new electric car.

This story originally ran on KBB.com. 

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World

U.K. Scraps Plan to Cut Income-Tax Rate for Top Earners

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LONDON—The U.K. government backtracked on a key part of its broad tax-cut plan after facing a backlash from financial markets and a rebellion in its own ranks, sending the pound higher on Monday but marking a major setback for new Prime Minister Liz Truss and her economic agenda.

U.K. Chancellor of the Exchequer

Kwasi Kwarteng

shelved an initiative to cut the top rate of income tax from 45% to 40%, more than a week after a broader fiscal plan to stoke growth through tax cuts and new spending forced an emergency intervention by the Bank of England to prevent a financial crisis.

Ms. Truss, who based her nascent leadership on a sweeping revamp of the British economy, defended the measure as recently as Sunday but eventually buckled under the pressure of international investors who balked at the scale of unfunded tax cuts and Conservative Party lawmakers shocked by polls showing they faced a near total wipeout at the next general election.

The pound rallied 1.3% against the dollar and bought $1.13 in late Monday trading—a higher rate than before the tax plans were unveiled last week. U.K. borrowing costs mostly fell, with the yield on the 10-year gilt slipping 0.21 percentage point to 3.93%, although yields were still far higher than before the plans.

“I know the plan put forward only 10 days ago has caused a little turbulence. I get it,” Mr. Kwarteng, the U.K.’s Treasury chief, told party members gathered at an annual conference on Monday. He said he hoped getting rid of the planned cut to the 45% rate would allow people to focus on the rest of the government’s pro-growth agenda.

He also sought to reassure financial markets: “There is no path to higher sustainable growth without fiscal responsibility.”

U.K. Prime Minister Liz Truss, at the annual Conservative Party conference on Sunday. She defended the package in a BBC interview that day.



Photo:

oli scarff/Agence France-Presse/Getty Images

Under pressure from lawmakers, Mr. Kwarteng late Monday decided to bring forward the Office for Budget Responsibility analysis of public finances to October from Nov. 23. The report is seen as key to providing transparency to the market about whether and when the government program will generate growth.

Still, political analysts said the chaos of the past week marked a rocky start to Ms. Truss’s tenure and raised questions over whether she can hold her party together as she seeks to implement spending cuts to help fund the plan’s remaining tax cuts and reassure markets about the scale of government debts.

U.K. bookmakers Oddschecker on Monday placed the odds of Ms. Truss being forced out of leadership at 4-1, compared with 66-1 last week. “One of the most incompetent, catastrophic debuts in political leadership I’ve seen,” wrote Brian Klaas, an associate professor of global politics at University College London, on Twitter.

The move to slash the top income-tax rate was a small part of a much bigger stimulus announced on Sept. 23 that paired large subsidies to help homeowners and businesses cope with rising energy costs along with the biggest tax cuts in a generation, a package funded by borrowing that raised alarm among investors.

The most controversial part of the plan was the move to cut the highest rate of income tax on the wealthy at a time when high inflation is cutting into real wages and a recession looms.

Conservative Party lawmakers had lined up to criticize the abolition of the tax. On Sunday,

Michael Gove,

a former senior cabinet minister, said it was morally wrong. The growing list of rebels meant the government would likely have struggled to get the top-rate tax cut voted through Parliament.

Despite the change, questions remain about the plan’s economic viability. The change will affect only £2 billion, the equivalent of $2.23 billion, out of an initial package of tax cuts that totaled £45 billion in foregone revenue for the government, according to the Institute for Fiscal Studies, an independent think tank. It estimated the British government would still require an additional £72.4 billion in debt issuance this financial year.

This is “a rounding error in the context of the public finances,” said Paul Johnson, director of the IFS. “The chancellor still has a lot of work to do if he is to display a credible commitment to fiscal sustainability.”

Still, the move to roll back the tax cut was welcomed by some investors as an important signal that the government was responding to market concerns about the plan’s impact on inflation and debt at a time of rising interest rates and financial uncertainty.

“It’s a first step in restoring credibility that was lost after the fiscal statement,” said

Cathal Kennedy,

U.K. economist at RBC Capital Markets.

Government officials on Monday said they intended to press ahead with other measures announced in the mini-budget, including a reduction in the lowest rate of income tax that economists estimated was set to cost much more than the removal of the highest rate in lost revenues. Other controversial measures remain, including scrapping a cap on banker bonuses imposed after the 2008 financial crisis.

The International Monetary Fund gave a rare rebuke of the initial plan, saying it risked further fueling inflation that the BOE sees hitting 11% later this year. On Friday, ratings agency S&P lowered its outlook on U.K. sovereign debt to negative, citing risks to the country’s economy.

Political analysts said the Truss government was likely bowing to political reality as much as economic reality.

“This move is rather symbolic, being less about the amount of money it will save and more about the poor signal it had delivered of ideological tax cuts,” said

Chris Turner,

an analyst at ING Bank. “The move looks driven by a backlash from her own party and perhaps the threat of a sovereign rating downgrade.”

The top-rate tax cut had threatened to completely overshadow the annual Conservative Party conference that is currently under way in Birmingham. The conference, normally a three-day show of devotion to the party leader, is instead turning into a more somber event as the Tories brace for a difficult few years ahead of an election in 2024.

A series of opinion polls after the plan pointed to a big loss of support for the Conservative Party among voters as it approached the gathering.

At the conference,

Chris Philp,

a senior Treasury minister, said he expected the party to support the rest of the tax-cutting package and argued that the U.K. government had a strong balance sheet. “We think they are the right plans because ultimately those plans are what make our economy competitive,” he said.

Turmoil in the U.K. Economy

Monday’s announcement is the latest step to stem the fallout from the fiscal plan. Last week, after coming under pressure from the BOE, the government announced the Office for Budget Fiscal Responsibility, an independent public finances watchdog, will in November lay out the full cost of the package and whether it will generate the 2.5% a year of economic growth the government promises. The government had resisted having the watchdog score the plan.

Mr. Kwarteng also promised on Monday that no new tax cuts would be coming. Both steps were also welcomed by investors.

“That’s quite a shift,” said Chris Jeffery, head of interest rates and inflation at Legal & General Investment Management.

The government said it would outline other steps to pay for the tax cuts in November, including likely spending restrictions such as making below-inflation increases to unemployment benefits. In the meantime, the government is hoping to win over doubters with a drumbeat of new announcements of regulatory reforms to make everything from agriculture to child-care provision more competitive.

Worries about the impact of tax cuts on government borrowing helped push yields on government bonds sharply higher early last week. On Wednesday, the BOE stepped in to halt the surge and the threat of significant harm to some pension funds, announcing that it would buy up to £65 billion of government bonds in a series of daily auctions.

When the bank intervention ends in mid-October, yields could rise again, but not as quickly as in recent days, said Orla Garvey, a fixed-income portfolio manager at

Federated Hermes.

The top-rate tax cut had threatened to overshadow the annual Conservative Party conference that is currently under way in Birmingham.



Photo:

oli scarff/Agence France-Presse/Getty Images

Write to Paul Hannon at paul.hannon@wsj.com, Max Colchester at max.colchester@wsj.com and Anna Hirtenstein at anna.hirtenstein@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

Amazon, Berkshire Hathaway Could Be Among Top Payers of New Minimum Tax

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Researchers at the University of North Carolina Tax Center analyzed securities filings to determine what companies would have paid if the tax had been in place last year. They found fewer than 80 publicly traded U.S. companies would have paid any corporate minimum tax in 2021, and just six—including Amazon and

Warren Buffett’s

conglomerate—would have paid half of the estimated $32 billion in revenue the levy would have generated.

The tax, which takes effect in January, is the largest revenue-raising provision in Democrats’ climate, healthcare and tax law. The provision, projected to generate $222 billion over a decade, alters tax incentives and complicates corporate tax decisions. Democrats aimed the provision at large companies that report profits to shareholders but pay relatively little tax.

Berkshire Hathaway would have paid $8.3 billion last year if the new tax law had been in place, according to UNC estimates.



Photo:

Michelle Bishop/Bloomberg News

“Who actually pays a lot is just not very many firms at all,” said Jeff Hoopes, an accounting professor at UNC Chapel Hill who is one of the study’s authors. “My guess is it will not be the same firms every single year.”

Although this wasn’t the aim of the law, it could have an impact on some of the wealthiest Americans. Some Democrats proposed direct taxes on billionaires’ unrealized capital gains earlier in the legislative process. While that wasn’t adopted, the new corporate minimum tax would increase the tax burden on some wealthy shareholders, such as Warren Buffett at Berkshire and

Jeff Bezos

at Amazon.

Mr. Buffett owned 16% of Berkshire Hathaway’s shares earlier this year, while Mr. Bezos owned nearly 13% of Amazon’s, securities filings show. Representatives for Messrs. Bezos and Buffett declined to comment.

Corporate tax directors and accounting firms are also analyzing the law, figuring out how they are affected and preparing to lobby over regulations. Few have estimated its impact publicly.

The UNC analysis comes with caveats. Lacking confidential tax returns that would allow precise calculations, the authors used publicly available financial data. Companies might change behavior to minimize taxes. A one-year snapshot includes unusual situations that cause companies to pay the minimum tax once, generating tax credits that can be used in future years.

Jeff Bezos owned nearly 13% of Amazon shares earlier this year, securities filings indicated.



Photo:

Jay Biggerstaff/USA TODAY Sports

Under the new law, companies averaging more than $1 billion in publicly reported annual profits calculate their taxes twice: once under the regular system with a 21% rate and again with a 15% rate and different rules for deductions and credits. They pay whichever is higher.

The new system, known as the book minimum tax, starts with income reported on the financial statement, not traditional taxable income. Differences between the two—the treatment of stock-based compensation, for example—could drive a company into paying the new tax.

According to the UNC estimates, Berkshire Hathaway would have paid the most in 2021, at $8.3 billion—or about a quarter of the estimated total—followed by Amazon at $2.8 billion and

Ford Motor Co.

at $1.9 billion.

Add the next three companies and that reflects more than half the $31.8 billion total:

AT&T Inc.

at $1.5 billion,

eBay Inc.

at $1.3 billion, and

Moderna Inc.

at $1.2 billion.

Berkshire Hathaway didn’t comment. Amazon declined to comment on the figure but said it awaits federal guidance. Amazon said its taxes reflect a combination of investment and compensation decisions and U.S. laws.

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An AT&T spokesman said the company doesn’t expect the minimum tax to affect its 2023 tax bill. “Academics don’t prepare our taxes; trained and expert tax professionals do that work,” the spokesman said.

Moderna’s tax rate in 2021—its first year with an operating profit—was shaped by the use of deductible net operating losses generated from research expenses, said

Jamey Mock,

the company’s chief financial officer. The company also paid much of its 2021 taxes during 2022. “We do not anticipate those unique conditions factoring into our future tax considerations,” he said.

Melissa Miller, a Ford spokeswoman, said the company pays all the taxes it owes and pointed to tax credits in the law designed to accelerate the transition to electric vehicles.

Heather Jurek, eBay’s vice president of tax, said the study’s computations and interpretations of the law are inaccurate when applied to the company. “UNC’s conclusions are driven by a significant disposition in 2021 that eBay is unlikely to replicate,” she said.

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What will be the impact of a 15% minimum tax on large profitable corporations? Join the conversation below.

Exelon Corp.

is among the few companies that has disclosed what it anticipates to be detailed effects from the tax. The utility-services holding company said in an August securities filing that it expected to incur annual cash costs of about $200 million starting next year, down from an earlier $300 million estimate.

Exelon said it continues to evaluate the tax provision and it expects to benefit from legislative provisions encouraging investment in electric vehicles and electrical-grid modernization.

Lynn Good,

chief executive of

Duke Energy Corp.

, told investors in August that the utility giant also expects to be affected, without providing figures. A spokesman said the UNC estimate, $802 million based on 2021 income, is far too high. He said the company also expects to benefit from the legislation’s tax credits for renewable and nuclear power.

Linking taxes closer to publicly reported profits is intentional. It will become harder for companies to maximize profits to impress shareholders while managing taxable profits downward to minimize payments to governments, tax advisers say.

Mr. Biden has said the new tax means that the days of profitable companies paying no tax are over.

“There are companies that, for a variety of reasons, will perpetually be in a minimum-tax position,” said April Little of accounting firm Grant Thornton LLP.

Some profitable companies could still pay very little or no federal income taxes. Companies can offset up to 75% of tax liability with credits—including renewable-energy incentives Congress just expanded. The law includes special provisions benefiting companies with wireless spectrum investments, defined-benefit pensions and significant capital investments.

“We have the anti-loophole tax bill that’s full of loopholes,” Mr. Hoopes said.

Tax advisers say companies are trying to understand the law, pointing to uncertainties such as the treatment of currency losses and gains, capitalized depreciation deductions and rules around mergers and acquisitions.

By early next year, companies will start providing earnings guidance, making estimated-tax payments and reflecting the tax in quarterly earnings. They might also start crafting mitigation strategies and looking for flexibility in the accounting rules for when income and expenses are counted.

“What I see most people doing right now is worrying about: How is it supposed to work? How am I going to do this without going crazy?” said Diana Wollman, a partner at law firm Cleary, Gottlieb, Steen & Hamilton LLP.

“They’re spending more time trying to figure out what they want to ask for in regulations in terms of either clarity or regulatory discretion than they are trying to figure out how they’re going to game it,” Ms. Wollman said.

Write to Richard Rubin at richard.rubin@wsj.com and Theo Francis at theo.francis@wsj.com

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Business

The U.S. city where property taxes rose the most last year will likely surprise you

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Today’s home buyers could be in for a shock when the tax man comes calling.

In 2021, around $328 billion in property taxes were imposed on single-family homes across the country, according to a new report from real-estate analytics company Attom Data Solutions. Growth in property taxes decelerated last year, despite the run-up in property values, suggesting that bigger tax bills could be coming down the pike.

Between 2020 and 2021, the amount levied in property taxes only grew by 1.8% on average, representing the second smallest annual increase over the past five years.

“It’s hardly a surprise that property taxes increased in 2021, a year when home prices across the country rose by 16%,” Rick Sharga, Attom’s executive vice president of market intelligence, said in the report. “In fact, the real surprise is that the tax increases weren’t higher, which suggests that tax assessments are lagging behind rising property values, and will likely continue to go up in 2022.”

The rise in home values, which far outpaced the increase in taxes, means that the effective tax rate last year actually decreased to 0.9% from 1.1% the year before.

But in most markets, property taxes increased faster than the national average. The largest increase occurred in Nashville, where property taxes surged 27% on average. Milwaukee was next with an 18.6% uptick in property taxes, followed by Baltimore and Grand Rapids, Mich.

Cities where property taxes declined in 2021 include Pittsburgh (down 35.1%) and New Orleans (down 20.1%). Multiple cities in Texas — Houston, Dallas and Austin — also saw marked decreases in the average property tax bill.

At the state level, Illinois had the highest effective tax rate in the country at 1.86%, followed by New Jersey at 1.73%. Notably, New Jersey had the highest average property tax bill for single-family homes in the country at $9,476. Generally, metro areas in the Northeast and Midwest saw higher property-tax rates than the rest of the country.

The potential for taxes to rise significantly in the future could come to represent a major concern for home buyers at a time when mortgage rates have soared to 5%.

“Prospective homeowners often fail to include property taxes when considering the cost of homeownership,” Sharga said in the report. “But, especially in some of the higher-priced markets across the country, property taxes can add thousands of dollars to annual ownership costs, and possibly be the difference between someone being able to afford a home or not.”

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US

Senate Democrats Push for Capital-Gains Tax at Death With $1 Million Exemption

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WASHINGTON—Progressive Senate Democrats suggested that their new plan to tax unrealized capital gains at death should come with a $1 million per-person exemption, setting that line 10 times higher than an earlier Obama administration proposal and shielding a larger swath of upper income households.

A discussion draft released Monday by Sen. Chris Van Hollen (D., Md.) and others marks a first attempt to put details on an idea that President Biden endorsed during last year’s campaign. Capital-gains taxation is likely to spur significant debate in coming months as Democrats look to raise money from high-income households to pay for Mr. Biden’s proposed spending on infrastructure and social programs.

Under current law, someone who dies with appreciated assets— including homes and stocks in taxable accounts—doesn’t have to pay capital-gains taxes on that increase. Instead, the heirs have to pay capital-gains taxes only after they sell and only on gains after the original owner’s death. That “stepped-up basis” is a longstanding feature of the tax code, but it has come under increasing attacks from Democrats who see wealthy people’s profits escaping the income tax.

“The stepped-up basis loophole is one of the biggest tax breaks on the books, providing an unfair advantage to the wealthiest heirs every year. This proposal will eliminate that loophole once and for all,” Mr. Van Hollen said in a statement.

The congressional Joint Committee on Taxation estimates that the current rule saves taxpayers more than $41 billion a year.

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