When to claim climate tax breaks, rebates

On Sep 3, 2022

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Households may soon be able to claim thousands of dollars in tax breaks and rebates if they take steps to reduce their carbon footprint.

But eco-friendly consumers must wait until 2023 — perhaps even 2024 or later — to see many of those financial benefits.

The Inflation Reduction Act, which President Joe Biden signed into law on Aug. 16, represents the largest federal investment to fight climate change in U.S. history. Among other measures, the law offers financial incentives to consumers who buy high-efficiency appliances, purchase electric cars or install rooftop solar panels, for example.

Those incentives and various qualification requirements kick in according to different timelines. Here’s when consumers can expect to see them and how to decide when to make a purchase.

When to get tax breaks for new, used electric vehicles

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There are many moving pieces tied to incentives for new and used electric vehicles — and each may influence when a consumer chooses to buy.

Consumers who buy a new electric vehicle can get a tax credit worth up to $7,500. Used vehicles qualify for up to $4,000. Each credit comes with various requirements tied to the consumer and vehicle, such as household income and sales price.

Consumers may also be eligible for additional electric-vehicle incentives from state and local governments or utility providers, per rules already on the books.

The timing for used vehicles is relatively straightforward: Purchases qualify for the new federal tax break starting in 2023. This “credit for previously-owned clean vehicles” is available to the end of 2032. However, consumers in the market for a used vehicle may wish to wait until 2024 or later (more on that in a bit).

Timing for new vehicles is more complex. There are three timeframes worth considering, each with their own benefits and drawbacks: purchases in 2022, 2023 and 2024 onward, according to Joel Levin, executive director of Plug In America.

There was a tax break for new electric vehicles already on the books — also worth up to $7,500. But the Inflation Reduction Act tweaked some rules that may limit who qualifies in the near term.

One rule took effect when Biden signed the law Aug. 16. It stipulates that final assembly of the new car must take place in North America.

Benefits and drawbacks of buying in 2022 or 2023

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Two other rules take effect in 2023. One carries requirements for sourcing of the car battery’s critical minerals; the second requires a share of battery components be manufactured and assembled in North America. Consumers lose half the tax credit’s value — up to $3,750 — if one of those requirements isn’t met; they’d lose the full $7,500 for failing to meet…