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Hey there.

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Welcome to a special bonus
episode of Talking Cars.

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I'm Keith Barry.

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And I'm Chris Harto.

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And Chris, you're
here because you

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are our expert around
EVs and tax policy

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and things like that, right?

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What's your official job title?

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Sure.

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I'm a senior policy analyst
here in our DC office

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of Consumer Reports.

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And really, what I
do is help advocate

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for consumer-friendly clean
transportation policies

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as well as help decipher
what's going on in Washington

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and translate that
for consumers.

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And you have been my guide
in deciphering these things

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because it is written in Subpart
C and section 4 or whatever.

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We need to say this.

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We're going to try and help
our viewers, listeners, readers

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through these changes.

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We're not giving you tax advice.

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Talk to an accountant
if you have questions.

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But we are going to try and
help you make smart choices

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about buying an EV.

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So Chris, what's going on here?

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I know that there used to
be a $7,500 tax credit,

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but it only applied to a
certain number of vehicles.

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There was, like, a
200,000 vehicle cap,

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and that's why you couldn't get
a tax credit on an electric GM

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car or a Tesla.

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But then with the
Inflation Reduction Act,

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they removed the cap, but then
they put other things in place.

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So what are some
of these changes?

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I know it has to
do with the buyer's

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income and some things about
the cars themselves, right?

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Yeah, they made a
number of big changes

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to the tax credit, many of which
went into effect January 1.

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Some of those big changes--

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the biggest one you mentioned
is removing that cap.

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So before, any automaker,
once they built 200,000 EVs,

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they no longer were eligible
for any tax credits.

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So that really punished
early movers, automakers

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that were building popular EVs
and benefited automakers who

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were building lower-volume EVs.

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So you could get
it on a Fiat 500e,

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but you couldn't
get it on a Tesla.

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Yeah, exactly.

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So when they removed
that cap, they

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put in some additional
restrictions

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to try and limit the tax credit.

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Some of the big ones there
is they put income caps on.

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So now the tax credit, you're
only eligible if your income

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is up to $150,000 for an
individual or up to $300,000

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for a family filing jointly.

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Another big one is they
put in restrictions

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on the price of the vehicle.

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So those restrictions
are up to 55,000--

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for an electric car
and up to $80,000

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for an electric SUV or
pickup truck or van.

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Yeah.

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So then the other
big difference,

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the other big change,
has to do with where

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these vehicles are made.

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And the one that most
people are talking about

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is the final
assembly requirement,

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that the car has to be made
in North America for it

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to qualify.

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Yeah.

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So the other major
requirements that

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were put on these tax
credits is that the vehicle

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had to be assembled here
in the United States,

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that the battery itself had
to be manufactured either

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in the United States or
the rest of North America.

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You get half the credit for
building the battery here

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in North America, and then the
other half of the tax credit

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is tied to where the key
critical minerals, things

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like lithium, cobalt, nickel,
some of these minerals

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that go into the battery,
where they're produced.

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And those can be
produced in any country

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that we have a free
trade agreement with.

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So we have another rule
there on top of all this

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called the Foreign
Entities of Concern Rule,

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and that means that countries
that the US has deemed

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a foreign entity of concern--

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and that includes right
now Russia and China--

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that a car that gets battery
minerals from those countries

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would not get any tax credit.

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But that's going to
be in 2024, right?

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Yeah, that's correct.

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That doesn't go into
effect until 2024.

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And yes, any battery
material that

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comes from a foreign
entity of concern,

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which is a list
that I believe is

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kept by the State Department--

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it's not just countries,
it's companies.

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It's terrorist organizations.

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It's any group,
company, country that

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is deemed a risk to
US national security

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is banned from eligibility.

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Yeah, but that's not until
2024, so let's walk through it.

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Someone's going to be
buying an EV today.

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It's February, and
it's not March yet.

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There aren't any rules about the
critical minerals and battery

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components, and there
aren't any issues

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about the foreign
entities of concern.

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So they need to check.

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They need to check their income.

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Are they income-eligible?

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They need to check if the
car is made in North America,

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if its final assembly
is in North America.

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And they can find that on
the window sticker of the car

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itself.

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They need to check
the price of the car.

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And that's if it's under
$55,000 for a sedan

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or a wagon or a crossover
and under $80,000 for an SUV

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or a truck or a van.

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And that's MSRP.

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That's not like a dealer.

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They can't discount the
price of the dealer.

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It's the window
sticker price, right?

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Yeah, that's correct.

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It's the price on the window
sticker with all the installed

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options there.

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So they buy the
car, and then when

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they do their taxes at
the end of the year,

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they can get a
$7,500 credit on it.

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But starting in March, as soon
as these new rules come out--

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and I've been in contact with
a lot of different automakers,

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and none of them are saying
which way they're assuming

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things will go for their cars.

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There's a chance
you could go and buy

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a car that, in February,
qualified for $7,500,

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and then it turns out
that because the battery

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components-- too much of
the battery components

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come from China or come from
anywhere outside of North

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America or a place where
there's no free trade

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agreement, that you'd only
get a half credit, right?

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That's correct, yeah.

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So for many of the vehicles
that currently qualify

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for the full credit that
are built in North America,

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many of them will have the tax
credit cut in half to $3,750

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after the Treasury releases
their guidance, which

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they expect to come
towards the end of March.

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All of these things are
really, really dynamic.

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You might not know a car that
qualifies today might not

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qualify tomorrow.

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Is there going to be some--
and might not qualify in 2024.

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So what's going on?

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I hear car manufacturers are--

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they're trying to
figure out whether--

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I know Hyundai and Kia are
talking about building more

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cars in the United States,
and Volkswagen switched

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the production of their ID.4 to
Tennessee from Europe so they

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would get--

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so the ID.4 for
would be eligible.

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There must be a lot that's going
on behind the scenes, right?

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Yeah, every automaker is
jockeying for position,

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trying to figure out how to
maximize this tax credit,

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take advantage of it to
the maximum possibility.

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You've seen price cuts
by a number of automakers

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to get their vehicles down
under the price limits.

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Yeah, suddenly Tesla
qualifies, yeah.

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Yeah.

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Tesla made big price cuts.

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That's leading to other
automakers making price cuts.

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I saw Ford just cut the price
of the Mach-E a little bit

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to qualify for the tax credit.

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So there's a lot of dynamics
on the pricing side.

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So why don't we just have a
tax credit that is on EVs?

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How come I have to worry about--
if I'm going out and buying

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an EV, why do I have to
worry about how much I make,

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the approach angle of
the car that I'm buying?

08:13.315 --> 08:15.852 align:middle line:90%


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What is the point here?

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What happened?

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Why is it like this?

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Yeah, it definitely adds a
lot of, some could argue,

08:25.210 --> 08:30.220 align:middle line:84%
unnecessary complexity
to the whole situation.

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I think the price
caps and income

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caps were well-intentioned.

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A lot of the EVs being built
by automakers, at least

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in the past couple
of years, have been

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pretty high-end luxury cars.

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And I think there's an argument
to be made that the taxpayers

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shouldn't be subsidizing
$100,000-plus sports cars

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for rich people.

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That's a pretty safe argument.

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The other factor with
the battery minerals

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and the battery
manufacturing component,

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that adds a ton of complexity
to the tax credit and, I think,

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is going to add some
confusion for consumers.

09:13.210 --> 09:17.800 align:middle line:84%
But again, the intention
behind that is really to--

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instead of just
importing everything,

09:22.690 --> 09:24.730 align:middle line:84%
to really build
up American supply

09:24.730 --> 09:26.080 align:middle line:90%
chains around these vehicles.

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If these vehicles
are going to be

09:28.780 --> 09:33.052 align:middle line:84%
a big part of the future
of transportation,

09:33.052 --> 09:37.450 align:middle line:84%
politicians in Washington
wanted to make sure that as many

09:37.450 --> 09:39.370 align:middle line:84%
of those vehicles as
possible and as much

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of that supply chain as possible
was built here in the United

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States instead of overseas.

09:44.650 --> 09:45.250 align:middle line:90%
I see.

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There's sort of a--

09:47.380 --> 09:50.300 align:middle line:84%
there's a worthy goal
behind all of these.

09:50.300 --> 09:52.720 align:middle line:84%
But for someone who's
just trying to buy a car,

09:52.720 --> 09:55.030 align:middle line:84%
there is another
option, though, right?

09:55.030 --> 09:56.020 align:middle line:90%
There's leasing.

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And I've been told not to
call it a leasing loophole,

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but it's sort of--

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I've been told by the
Treasury Department

10:04.540 --> 10:07.540 align:middle line:84%
that it is a long-standing
interpretation

10:07.540 --> 10:12.240 align:middle line:84%
of commercial tax law,
that it's not a loophole.

10:12.240 --> 10:14.112 align:middle line:90%
But what's going on here?

10:14.112 --> 10:15.570 align:middle line:84%
If you lease a car,
all these rules

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just suddenly go away, kind of?

10:17.370 --> 10:19.620 align:middle line:90%
Yeah, so that's correct.

10:19.620 --> 10:21.390 align:middle line:90%
In a way, yes.

10:21.390 --> 10:26.400 align:middle line:84%
So we've been talking throughout
this podcast about the consumer

10:26.400 --> 10:28.440 align:middle line:84%
tax credit, and
that's the one that

10:28.440 --> 10:31.770 align:middle line:84%
has all of these
restrictions on it.

10:31.770 --> 10:33.450 align:middle line:90%
If I'm going to buy a car--

10:33.450 --> 10:34.500 align:middle line:90%
I'm an individual.

10:34.500 --> 10:35.670 align:middle line:90%
I'm going to a dealership.

10:35.670 --> 10:38.340 align:middle line:84%
I'm buying a car, and
I'm going to drive it.

10:38.340 --> 10:39.405 align:middle line:90%
It's my personal vehicle.

10:39.405 --> 10:40.650 align:middle line:90%
That's correct, yeah.

10:40.650 --> 10:42.720 align:middle line:84%
There is a separate
tax credit that

10:42.720 --> 10:46.260 align:middle line:84%
was passed in the Inflation
Reduction Act that

10:46.260 --> 10:48.060 align:middle line:90%
is for commercial vehicles.

10:48.060 --> 10:51.570 align:middle line:84%
If I'm a contractor or I'm
buying a Ford Lightning

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for my workplace.

10:52.740 --> 10:56.490 align:middle line:84%
Yeah, if you're buying a Ford
Lightning as a work truck,

10:56.490 --> 11:01.480 align:middle line:84%
if Amazon is buying all these
electric delivery trucks,

11:01.480 --> 11:04.990 align:middle line:84%
those will qualify for
the commercial tax credit.

11:04.990 --> 11:11.850 align:middle line:84%
So the IRS has long defined a
lease as a commercial vehicle

11:11.850 --> 11:15.000 align:middle line:84%
ownership, and they will
be eligible for the tax

11:15.000 --> 11:18.630 align:middle line:84%
credit, the commercial tax
credit, which they could

11:18.630 --> 11:22.290 align:middle line:84%
potentially pass along
and hopefully pass along

11:22.290 --> 11:24.780 align:middle line:84%
to consumers who
lease that vehicle.

11:24.780 --> 11:26.880 align:middle line:84%
So to be clear, the
commercial tax credit

11:26.880 --> 11:28.830 align:middle line:84%
doesn't have all
these restrictions

11:28.830 --> 11:31.410 align:middle line:84%
about where a car is made
or the buyer's income

11:31.410 --> 11:32.670 align:middle line:90%
or anything like that, right?

11:32.670 --> 11:36.010 align:middle line:84%
So what would happen is
I'd go, I'd lease a car,

11:36.010 --> 11:39.630 align:middle line:84%
and then the
dealership might take

11:39.630 --> 11:45.180 align:middle line:84%
the full $7,500 off the
price of the vehicle

11:45.180 --> 11:47.610 align:middle line:84%
that the lease is
based on, right?

11:47.610 --> 11:48.840 align:middle line:90%
Yeah, that's correct.

11:48.840 --> 11:52.590 align:middle line:84%
And each automaker and
their financing units

11:52.590 --> 11:57.360 align:middle line:84%
are figuring out exactly how
that will be implemented.

11:57.360 --> 12:00.000 align:middle line:84%
But in some cases,
they might just

12:00.000 --> 12:04.080 align:middle line:84%
give you a check for
$7,500 at the time

12:04.080 --> 12:06.540 align:middle line:84%
that you lease the
vehicle, or they

12:06.540 --> 12:10.590 align:middle line:84%
may use that $7,500 to
reduce the monthly payment

12:10.590 --> 12:11.760 align:middle line:90%
throughout that lease.

12:11.760 --> 12:14.463 align:middle line:84%
There's different ways
that may be implemented.

12:14.463 --> 12:16.630 align:middle line:84%
We're waiting to see how
that comes out in practice.

12:16.630 --> 12:18.130 align:middle line:84%
So far, only a
couple of companies--

12:18.130 --> 12:20.130 align:middle line:84%
I know Lucid has
talked about they're

12:20.130 --> 12:22.260 align:middle line:84%
going to take it off
the price of the Air EV,

12:22.260 --> 12:24.030 align:middle line:84%
and that's a really
expensive car

12:24.030 --> 12:26.040 align:middle line:84%
that's not made in
America that tends to be

12:26.040 --> 12:27.460 align:middle line:90%
bought by wealthier buyers.

12:27.460 --> 12:30.580 align:middle line:84%
So that's a car that's not
going to get the individual tax

12:30.580 --> 12:31.080 align:middle line:90%
credit.

12:31.080 --> 12:33.570 align:middle line:84%
But from our end, the
advice that we give

12:33.570 --> 12:35.618 align:middle line:90%
is if you're leasing an EV--

12:35.618 --> 12:37.410 align:middle line:84%
well, first of all, if
you're buying an EV,

12:37.410 --> 12:40.350 align:middle line:84%
and you don't qualify or the
car doesn't qualify for the tax

12:40.350 --> 12:41.880 align:middle line:90%
credit, consider a lease.

12:41.880 --> 12:43.470 align:middle line:84%
And then when
you're leasing, make

12:43.470 --> 12:46.620 align:middle line:84%
sure you get an
itemized bill of sale

12:46.620 --> 12:49.800 align:middle line:84%
for the lease and
itemized documents that

12:49.800 --> 12:53.940 align:middle line:84%
show exactly where that
$7,500 was accounted for.

12:53.940 --> 12:56.520 align:middle line:84%
Because they don't
have to give it to you.

12:56.520 --> 12:58.055 align:middle line:90%
They can [INAUDIBLE].

12:58.055 --> 12:58.680 align:middle line:90%
That's correct.

12:58.680 --> 13:02.580 align:middle line:84%
There's no requirement
for them to pass it along.

13:02.580 --> 13:05.100 align:middle line:84%
If you don't know about
it, you don't ask about it,

13:05.100 --> 13:07.210 align:middle line:84%
they could theoretically
just pocket it.

13:07.210 --> 13:07.710 align:middle line:90%
Yeah.

13:07.710 --> 13:12.090 align:middle line:84%
So one last piece-- there is
also a used car tax credit,

13:12.090 --> 13:13.080 align:middle line:90%
which is new.

13:13.080 --> 13:14.010 align:middle line:90%
Yeah, that's correct.

13:14.010 --> 13:20.070 align:middle line:84%
It's up to $4,000 or 30% of
the value of the vehicle.

13:20.070 --> 13:22.740 align:middle line:84%
The vehicle-- there's a number
of restrictions on this one

13:22.740 --> 13:23.520 align:middle line:90%
as well.

13:23.520 --> 13:26.220 align:middle line:90%
The big one is the price.

13:26.220 --> 13:31.440 align:middle line:84%
So the vehicle has to
be priced under $25,000.

13:31.440 --> 13:35.370 align:middle line:84%
You also have to purchase
the vehicle from a dealer.

13:35.370 --> 13:41.040 align:middle line:84%
You can't just go buy an EV
off of Craigslist or Facebook

13:41.040 --> 13:43.380 align:middle line:84%
Marketplace and
claim the tax credit.

13:43.380 --> 13:46.950 align:middle line:84%
The income limits are also
lower for the used vehicle tax

13:46.950 --> 13:47.820 align:middle line:90%
credit.

13:47.820 --> 13:53.550 align:middle line:84%
So instead of $150,000 for an
individual, it's only $75,000

13:53.550 --> 13:59.010 align:middle line:84%
for an individual or $150,000
for a family filing jointly.

13:59.010 --> 14:00.670 align:middle line:84%
There are a couple
of other things too.

14:00.670 --> 14:01.170 align:middle line:90%
What is it?

14:01.170 --> 14:01.990 align:middle line:90%
It's 30%?

14:01.990 --> 14:03.420 align:middle line:90%
It's not necessarily $4,000.

14:03.420 --> 14:04.260 align:middle line:90%
It's also--

14:04.260 --> 14:05.730 align:middle line:90%
Yeah, that's correct.

14:05.730 --> 14:09.120 align:middle line:90%
If the vehicle is priced lower--

14:09.120 --> 14:12.060 align:middle line:84%
it's only up to 30% of
the price of the vehicle,

14:12.060 --> 14:17.280 align:middle line:84%
so you can't go buy a $5,000
used EV for, essentially,

14:17.280 --> 14:18.190 align:middle line:90%
almost free.

14:18.190 --> 14:18.690 align:middle line:90%
Yeah.

14:18.690 --> 14:22.830 align:middle line:84%
And also, the vehicle has to
be at least two years old.

14:22.830 --> 14:24.030 align:middle line:90%
So you can't just buy--

14:24.030 --> 14:27.120 align:middle line:84%
you can't buy it from
yourself, and it can't

14:27.120 --> 14:28.950 align:middle line:90%
have been sold more than once.

14:28.950 --> 14:30.550 align:middle line:90%
So this is really interesting.

14:30.550 --> 14:33.690 align:middle line:84%
So if you have a car that's
a two-owner Nissan Leaf

14:33.690 --> 14:36.270 align:middle line:84%
versus used and it meets
all the other requirements,

14:36.270 --> 14:37.660 align:middle line:90%
it doesn't qualify.

14:37.660 --> 14:41.050 align:middle line:84%
But if you have a one-owner
Nissan Leaf, it qualifies.

14:41.050 --> 14:44.730 align:middle line:84%
So it's going to do some
weird things to the used car

14:44.730 --> 14:46.980 align:middle line:84%
market-- used EV market,
at least, I think.

14:46.980 --> 14:47.707 align:middle line:90%
Yeah.

14:47.707 --> 14:50.290 align:middle line:84%
Yeah, there's definitely going
to be some interesting effects.

14:50.290 --> 14:54.510 align:middle line:84%
So bottom line-- if
you're looking for a car

14:54.510 --> 14:56.910 align:middle line:84%
today, if you're
looking for an EV today,

14:56.910 --> 15:00.180 align:middle line:84%
and it looks like it qualified,
don't ask your dealer.

15:00.180 --> 15:02.520 align:middle line:84%
I mean, ask your dealer,
but talk to an accountant.

15:02.520 --> 15:03.930 align:middle line:90%
Don't ask us.

15:03.930 --> 15:04.920 align:middle line:90%
Talk to an accountant.

15:04.920 --> 15:08.240 align:middle line:84%
Talk to a tax
professional to find out.

15:08.240 --> 15:10.080 align:middle line:84%
I'm not saying the
dealer would lie to you.

15:10.080 --> 15:10.580 align:middle line:90%
No.

15:10.580 --> 15:12.163 align:middle line:84%
I'm just saying that
this is something

15:12.163 --> 15:16.250 align:middle line:84%
which is so dynamic that you
need someone who really is

15:16.250 --> 15:17.750 align:middle line:90%
on top of the whole situation.

15:17.750 --> 15:22.130 align:middle line:84%
So let's say your accountant
says, hey, the car qualifies.

15:22.130 --> 15:24.020 align:middle line:84%
Should you go out
and buy it today?

15:24.020 --> 15:26.510 align:middle line:90%
Yeah, if a vehicle qualifies--

15:26.510 --> 15:29.300 align:middle line:84%
made in America, qualifies
for the tax credit,

15:29.300 --> 15:32.690 align:middle line:84%
you can find it, dealers
aren't marking it

15:32.690 --> 15:35.300 align:middle line:90%
up by a bunch of money.

15:35.300 --> 15:37.190 align:middle line:90%
Definitely go buy it today.

15:37.190 --> 15:40.580 align:middle line:84%
Yeah, because it might
not qualify tomorrow.

15:40.580 --> 15:41.630 align:middle line:90%
That's true, yeah.

15:41.630 --> 15:45.170 align:middle line:84%
So another reminder, though,
is that there's no such thing

15:45.170 --> 15:47.130 align:middle line:90%
as a good deal in a bad car.

15:47.130 --> 15:50.600 align:middle line:84%
So don't rush out and buy a
car that isn't CR recommended.

15:50.600 --> 15:54.770 align:middle line:84%
We have a list of our
CR-recommended EVs at cr.org.

15:54.770 --> 15:58.070 align:middle line:84%
Don't buy one of those ones
on the bottom of the list just

15:58.070 --> 15:59.750 align:middle line:90%
to save some money.

15:59.750 --> 16:04.010 align:middle line:84%
And also, if you go to
CR's EV Incentive Finder,

16:04.010 --> 16:08.510 align:middle line:84%
which is cr.org/evsavings,
you can find out what else you

16:08.510 --> 16:09.650 align:middle line:90%
might be able to save on.

16:09.650 --> 16:12.230 align:middle line:84%
So you can get a discount
in installing a charger.

16:12.230 --> 16:14.330 align:middle line:84%
You can get a discount
on your electric rate.

16:14.330 --> 16:17.150 align:middle line:84%
You can get a discount
from your power company.

16:17.150 --> 16:18.410 align:middle line:90%
Some states have rates.

16:18.410 --> 16:22.460 align:middle line:84%
I know in Connecticut,
it's $2,000 from some cars.

16:22.460 --> 16:25.130 align:middle line:84%
Massachusetts, is
$3,500 on top of that.

16:25.130 --> 16:28.340 align:middle line:84%
So you can save a
lot of money on an EV

16:28.340 --> 16:30.320 align:middle line:90%
if you know who to ask.

16:30.320 --> 16:33.770 align:middle line:84%
So start by asking
Consumer Reports.

16:33.770 --> 16:36.860 align:middle line:84%
So as all these things
change, Chris, I'm

16:36.860 --> 16:38.440 align:middle line:90%
going to keep going to you.

16:38.440 --> 16:40.730 align:middle line:84%
And I think we might
have to do a follow-up

16:40.730 --> 16:46.550 align:middle line:84%
to this podcast as things change
But thanks so much for joining.

16:46.550 --> 16:49.700 align:middle line:84%
Head over to cr.org
and find out more.

16:49.700 --> 16:54.140 align:middle line:84%
And we'll be updating our
list of vehicles that qualify.

16:54.140 --> 16:57.260 align:middle line:84%
And thanks for joining us
on this very special bonus

16:57.260 --> 16:58.160 align:middle line:90%
episode.

16:58.160 --> 17:01.210 align:middle line:90%
[MUSIC PLAYING]

17:01.210 --> 17:08.000 align:middle line:90%