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Treasury eliminates confusion over EV tax credits for SUV price caps

The US Treasury Department on Friday released an update on how vehicles will qualify as cars or SUVs under modified EV tax creditnow known as the clean car tax credit.

For electric car buyers, this is good news, as it should clear up the confusing and seemingly arbitrary dividing line within which certain versions of certain models—such as Tesla Model Y—eligible at a higher MSRP while others did not.

The new set of credits under the Inflation Recovery Act incorporates a number of changes, including income limits, as well as unenforced domestic sourcing rules. But it also puts price limit for qualified electric vehicles, is $55,000 for new cars and $80,000 for pickups, SUVs, and trucks; and by far, it’s been one of the hardest for shoppers.



Simply put, certain models that are classified as SUVs on their window stickers are capped at $55,000.

What’s changed: Look at the window sticker

To make it easier for consumers to see which vehicles qualify under the applicable MSRP limits, the Treasury is updating the vehicle classification standard to use the Consumer EPA Fuel Economy Labeling standard. , instead of the standard CAFE (company average fuel economy).

“This change will allow intersecting vehicles with similar features to be treated consistently,” the Treasury said in a statement. “It will also sort vehicle classifications by clean car credit with the classification displayed on vehicle labels and on the consumer-facing website”

Example Ford Mustang Mach-E and Tesla Model Y for class EPA

Example Ford Mustang Mach-E and Tesla Model Y for class EPA

Shoppers can find the EPA vehicle classification at and click the “Specifications” tab. For example, Tesla Model Y and Ford Mustang Mach-E both models are classified by the EPA as “Small Sport Utility Vehicles”—clarifying that they will now qualify.

And to emphasize this, the IRS updated this Friday morning Eligible vehicle list and their respective price limits.

How did this happen?

For the sake of clarity, it’s a good move. So how did this happen in the first place?

The Treasury Department decided to use the definition between car and SUV with historical preference. Accordingly, SUVs with a total weight of less than 6,000 pounds can only be bundled with trucks if they have all-wheel drive (or four-wheel drive).

It dates back to the 1970s — long before SUVs were any significant market classification for passenger cars — and it hasn’t been significantly updated since.

The regulatory distinction between cars and SUVs is currently only used to calculate a company’s average fleet fuel economy (CAFE)—a compliance obligation and a metric for agencies. management of industry performance in compliance with efficiency and emissions standards. But the list of vehicles participating in CAFE is either a car or a truck and why isn’t clearly presented anywhere in a form consumers can understand.

Ford Mustang Mach-E 2022

Ford Mustang Mach-E 2022

Furthermore, the application of the CAFE distinction between cars and SUVs does not provide much useful distinction between vehicle types and how they may actually be purchased or used.

So using it for the EV tax credit has essentially created a dividing line in the middle of the SUV sector, penalizing lighter models with two-wheel drive, while rewarding heavier models. with four-wheel drive, more seats and perhaps optional performance.

Yes, it is retroactive—to January 1

The Treasury Department said those who have put a vehicle into service (received) since January 1, 2023, qualify under the new definition, and meet all other credit requirements will be able to claim that vehicle—even if it wasn’t eligible as of today.

Now that we’re clear on the types of vehicles that qualify for certain price ceilings, the Treasury noted that another update is coming. Guide to Sourcing Important U.S. Minerals—tax credit area not yet implemented—will be released in March, and it has the potential to significantly narrow the field for electric vehicles that qualify for full credit.

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