Feds Revise EV Tax Credit Rules So More Vehicles Can Be Called SUVs

  • The US Treasury Department today announced new vehicle classifications that will allow more vehicles to qualify as SUVs and get the newly updated EV tax credits.
  • The new rules consider the Cadillac Lyriq, the Ford Mustang Mach-E, the Tesla Model Y and others to be SUVs and thus qualify under a higher $80,000 MSRP limit.
  • The rule change is retroactive, so anyone who bought a vehicle since January 1, 2023 that qualifies now can claim the credit.

More changes are coming to the complicated federal tax credit rules involving EVs. Notably, the latest update allows more models to now be classified as SUVs, raising their MSRP price cap from the $55,000 cap used for cars to $80,000—trucks and vans also fall into this category.

It’s all in how they look at it

The US Treasury Department today announced new standards for vehicle classifications, which are being implemented as part of the Inflation Reduction Act (IRA). The IRA gave the decision on how to classify these vehicles to Treasury Secretary Janet Yellen, using criteria similar to those used by the Environmental Protection Agency (EPA) and the Department of Energy (DOE) to determine vehicle size. and determine class.

The Treasury Department has been classifying vehicles using the EPA’s CAFE standards, but it will now switch to a system based on the Fuel Economy labeling standard. While the old rules will remain in effect until the proposed regulations are made official — we don’t know when that will be — the Treasury Department said if you bought an EV in 2023 that previously didn’t qualify but now does do, you can still claim the credit. Both Ford and Tesla recently announced price cuts for their vehicles that will now qualify for even higher prices.

The IRA was signed into law in August, but it wasn’t until late December that the Internal Revenue Service defined some of the provisions in the law, finally clarifying which EVs will qualify for the rebate at the start of the new year. As part of today’s announcement, the Treasury Department reminded everyone that it will further clarify its guidance on critical minerals and batteries in March.

This affects both car manufacturers and buyers

Ford, GM and Tesla all supported changing the previous rules. GM tells Car and Driver in a statement that tax credits are “a proven accelerator of electric vehicle adoption” and said Treasury’s “alignment” with the CAFE standards “will provide needed clarity to consumers and dealers, as well as regulators and manufacturers.”

At Ford, Chris Smith, head of government affairs, said C/D: “We recognize that the Treasury Department has a huge task ahead of them in implementing the Inflation Reduction Act. We truly appreciate their consideration and hard work to make sure more customers are able to access clean vehicle tax credits under the Act.”

For EV buyers, the change means some vehicles that were previously subject to a lower price cap qualify—or, at least, more expensive trim levels qualify—because they’re now considered SUVs instead of cars. For example, the Cadillac Lyriq, the Ford Mustang Mach-E, the Tesla Model Y and the Volkswagen ID.4 are specifically affected.

The Treasury Department said: “This change will allow crossover vehicles that share similar characteristics to be treated consistently.”