New incentives for buying electric cars go into effect January 1, and a lot has changed. Here’s an explanation.

Congress changed the rules for electric car tax credits over the summer, but the changes didn’t take effect immediately. Some will start quickly, while others will decrease over time. The evolving rules mean the best time to buy an electric car depends on everything from what car you want to your current income.

We’ll break it down for you.

What has changed, what will change

Before Congress passed the Inflation Reduction Act in August, federal EV tax credits were fairly easy to understand. Buyers can claim a credit of up to $7,500 when they buy one of the first 200,000 electric cars or plug-in hybrid vehicles (PHEVs) built by a manufacturer.

Once a manufacturer reached that limit, the credit was phased out over the remaining year.

Two manufacturers, General Motors GM,
and Tesla TSLA,
passed the cap. Buyers could not qualify for a credit when purchasing one of their cars. Another – Toyota TM,
— it passed in 2022, meaning buyers could still qualify for a portion of the credit.

No other manufacturer had reached the limit, so all EVs and PHEVs from other manufacturers are eligible today.

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

The law radically changes the rules. Broadly speaking, it eliminates the manufacturer limit and instead introduces income and price limits.

That means buyers can re-eligible for the credit when purchasing a GM, Tesla or Toyota product. But only if they fall below income limits and the car falls below price caps.

Those rules will enter into force on 1 January 2023.

Some vehicles that are not eligible for a credit by December 31 will be eligible on January 1 – primarily those from GM and Tesla.

New revenues and price caps

Only individuals with an adjusted gross income of $150,000 or less are eligible for the discounts. The limit goes to $225,000 for those who sign up as heads of households and $300,000 for joint petitioners.

The law also introduces price caps. The discount now only applies to cars costing less than $55,000 and trucks and SUVs costing less than $80,000.

That rules out many Tesla products. Only the least expensive version of its Model 3 sedan, the Model 3 Standard Range, sneaks in below the price cap. Any Tesla Model Y SUV is eligible. No Model S or Model X falls below the price cap.

Factory location limits

Congress aimed to get more Americans into electric cars with the new regulations to reduce greenhouse gas emissions. But it also has other purposes.

Lawmakers designed the law to boost North American manufacturing. Only EVs assembled in North America are eligible for the credit. That excludes some popular models, such as the Hyundai Ioniq 5, North American Car of the Year 2022, built in South Korea.

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

It can be challenging to determine exactly where the manufacturer built a car. Some manufacturers make the same cars in different countries and ship them around the world. The only way to be sure is to get the Vehicle Identification Number (VIN) of the car you want to buy and enter it into the U.S. Department of Energy’s VIN decoder.

To see: These cars are the most ‘made in America’

Mining site limits

The law also introduces a set of rules requiring manufacturers to mine critical battery components in the US or from major trading partners. Those rules won’t go into effect until 2024, so you don’t need to factor them into your purchasing decision today.

Automakers are working to adapt their supply chains to meet the requirements. But according to the Alliance for Automotive Innovation (a major trade group), no EV today could meet battery sourcing requirements.

Tesla is offering a discount for shopping before January 1

Many Tesla buyers have found out that their car qualifies for a tax credit if they wait to buy — so much so that it can cause problems for the company.

Tesla reports delivery figures every quarter. The company has had a rough quarter, with its stock price falling dramatically after CEO Elon Musk began spending much of his time running Twitter. There are signs that it is concerned about an artificially low number of deliveries in its fourth quarter results because of all the late deliveries requested by customers.

That can benefit buyers.

Tesla rarely discounts its cars. But in December, it’s offering a $3,750 discount on any Model 3 and Model Y if customers agree to take delivery in 2022.

For some buyers, waiting for the January tax refund is still the best move. But if you plan to buy a Tesla and your income prevents you from qualifying for the tax incentive, you can get a lower price by buying now.

Reasons to wait another year?

A final piece of law may influence your decision. Before and after January 1, 2023, the rules allow you to take the $7,500 rebate as a credit on your taxes.

On January 1, 2024, dealers will be allowed to offer it as an upfront discount instead. Waiting another year may make sense for buyers who can’t easily afford to float the $7,500 until tax time.

Put everything together

So if you’re looking for an electric vehicle, when should you buy it?

If you want a GM, Tesla or Toyota product, you won’t be eligible for the $7,500 tax credit in 2022. You may be eligible in 2023 if your income and the price of the car both fall under the new maximums. In that case you have to wait.

However, if you’re buying a Tesla Model 3 or Model Y and your income or the price of the car means it doesn’t qualify, act now and accept Tesla’s discount offer.

To see: The 2023 Kia EV6 is over $17,000 cheaper than the Tesla Model Y. How do they compare?

If you want to buy an electric car from another manufacturer, it is better to act before 1 January. Income and price caps then won’t affect your purchase, and many cars that qualify under the old rules don’t qualify under the new ones because of where they build them.

This story originally continued

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