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Car buyers have a lot to consider—electric or gas, size, features, make, model, and price, of course. For most of us, cost is actually the starting point. And when we can get any kind of a break, it can be the push we need to settle on a choice.
IRS purchase tax credits for electric vehicles certainly have played into more than a few decisions about what make and model to drive off the floor. But there’s no denying that what kind of auto qualifies has been a little wonky. Customers have been confounded by requirements that ranged from a manufacturer cap on sales to rules on factory location and batteries.
Confusion still abounds because the qualifications seem to be ever changing. Today, here’s the upshot: All Model 3 sedans made by
Tesla
(ticker: TSLA) are eligible for the full $7,500 credit, and the R1T and R1S models from Rivian Automotive (RIVN) qualify for a $3,750 credit.
A notable omission is the Ocean SUV, the first vehicle by
Fisker
(FSR) that is on track to be delivered this month. How the start-up was left idling by the IRS is a long, winding tale of the EV tax credit.
Before this year, most battery-powered EVs qualified for a $7,500 purchase tax credit, which comes off the buyer’s tax bill. It isn’t a deduction.
And there was also a manufacturer cap on sales. If an auto maker exceeded the limit, its vehicles simply didn’t qualify for the credit. For many years,
Tesla
buyers didn’t get the break because Tesla just sold too many cars.
Then came the Inflation Reduction Act, passed by Congress last August. It removed the cap but inserted new rules about manufacturing location as well as batteries and battery-material sourcing. Essentially, cars need to be assembled in North America and a significant portion of batteries and battery materials need to be sourced from U.S.-friendly countries.
So in January, Tesla buyers qualified for the $7,500 credit again. But
Fisker
lost the credit because of the new rule about factory location. The Ocean is assembled in Europe by Magna International (MGA).
For Fisker, the changes created a migraine. Early in 2022, the company was preselling the Ocean, and told potential buyers that the SUV would qualify for the credit. And it did at the time. But Fisker didn’t deliver any vehicles to U.S. buyers last year.
Now, the Ocean is coming and the tax credit is gone. The new rules apply.
The tax credit comes when the vehicle is placed in service, not ordered, said accounting expert Robert Willens. The IRS also confirmed the standard.
It’s too bad for those who ordered certain EVs a while ago. The best and easiest way to avoid a tax-credit surprise is to check fueleconomy.gov, which has an up-to-date list of all EVs that qualify.
All Tesla’s Model 3s, for example, qualify again for the full credit. They qualified for $7,500 in January. Then, the rear-wheel drive model lost half the credit because of the battery rules. Now, the credit is back.
“The new IRS position arises from the fact that the Model 3 sedans pass muster when it comes to battery sourcing,” added Willens.
Exactly what the company did to qualify for the full credit isn’t known. Tesla didn’t respond to a request for comment.
And
Rivian Automotive
(RIVN) won back part of the tax credit, too. Like Tesla,
Rivian
‘s R1T and R1S vehicles were eligible for the $7,500 at the start of the year. I April, the credit evaporated. Now, a $3,750 credit is available. It was a paperwork issue. Companies have to demonstrate where they get batteries and materials from. Rivian didn’t immediately return a request for comment.
Fisker buyers are left out in the cold, but not all is lost for the startup’s Ocean and other EVs: A lease loophole. Commercial buyers, such as leasing companies, get the $7,500 tax credit on each EV, regardless of where it is made. So leasing firms can pass the savings on to customers in the form of a lower monthly payment.
Navigating the ins and outs of EV tax credits is hard. So check the IRS website. Even simpler, and maybe better, for car buyers is to focus on the features they want, their price range, their needs—whether the auto is electric or not.
Write to Al Root at allen.root@dowjones.com