The federal tax credits given to consumers for buying an electric vehicle (EV) are outstanding. Consumers can receive up to $7,500 tax credit when they file their taxes.
Half of the tax credit becomes available if the car and the battery are predominantly assembled in North America. The other half becomes available if the minerals used in the battery originate in the United States or a partnering country.
Tax Credit Used as Down Payment
In the past, this federal tax credit could only be claimed on the consumer’s tax return, but Congress just announced a change to this that could be transformative to the sale of EVs. Starting January 1, 2024, this credit can be transferred directly to the dealership and effectively used as a downpayment on a new vehicle.
This means that consumers won’t have to wait until they file their annual taxes to benefit from this tax credit. They can utilize it instantly when purchasing a new vehicle.
What’s The Catch?
While consumers may be excited about this change, dealerships are concerned. There is worry about the timing of these monetary transfers and the financial risks associated with waiting for the government to pay out.
Michelle Primm, an Ohio dealer, is concerned about the cash flow for car dealerships. She said, “Car dealers are asset-rich and cash-poor. Cash flow is something we look at every single day in a car dealership.”
Understandably, the National Automobile Dealers Association is collaborating with the IRS to ensure the payment system for this program is as streamlined as possible.
How Does The Math Work Out?
If you’re considering buying, for example, the 2024 Volvo EX30, the starting price is just under $35,000. The list of cars eligible for this tax credit regularly changes, but if this car were to qualify for the full tax credit, then the $7,500 could be used as the down payment, and then there would be a remaining $27,500.
If you financed this under an average interest rate, along with the normal taxes and fees, you’d be looking at a $520 monthly car payment. And with the average car payment being $725 in 2023, you’d be in good shape.