Big changes are coming to the federal electric car tax credit with congressional passage of the Inflation Reduction Act, changes that may make it eventually easier to own an EV, but initially harder to afford one. The details are more complicated than ever, but can make a huge difference in EV adoption. Here's what you need to know as President Joe Biden prepares to sign the new legislation into law.

First, the good news for EV buyers.

Credit extended to 2032

The new rules reauthorize the $7,500 federal tax credit for a full battery or advanced plug-in hybrid until 2032. That fundamental decision protects a program that has been in place since 2010 and has been targeted for elimination by some politicians and at least one faction of the petroleum industry as a cozy giveaway to electric carmakers and wealthier car buyers.

No more popularity penalty

The new rules do away with a cap that sunsets the tax credit for 클레오카지노주소 any brand of car once it sells 200,000 units of qualifying electrified personal vehicles. This "popularity penalty" has been decried by carmakers like Tesla and GM who long ago sold more than 200,000 units and now effectively play the game with a $7,500 handicap. Ford and Toyota are in their midst of their sunset phase of the tax credit as well. While there are economic and industrial arguments on both sides, lifting the 200,000 unit cap is clearly a benefit to car buyers who just want the most affordable cars to choose from.

It's been a while since you saw any mention of a federal tax credit on a Tesla order page. That may soon change.

Your income limits

Those limits on car cost are largely made moot by new limits on the buyer's income level. The EV tax credit is only available to buyers whose modified adjusted gross income is no more than $150,000 in the year of purchase, for a single filer; $225,000 for a head of household; or $300,000 if filing a joint return. These aren't exactly poverty incomes, but they will exclude some of the most passionate EV evangelists in the wealthiest metros (PDF). 

The next set of hurdles are eye-glazing policies around international trade.

Built in America, or somewhere we like

No matter the vehicle cost or your income, cars whose batteries are assembled in or made from materials sourced from "foreign entities of concern" will be in hot water. This sort of thing is way beyond my expertise, but law firm White & Case indicates it will redline countries specified in the Infrastructure Investment and Jobs Act like China, Russia, Iran and North Korea. This prohibition is stark in an auto industry that is highly reliant on China, perhaps explaining why it doesn't take effect until Dec. 31, 2024.

The Chevy Bolt is assembled in America, but unless its battery content is at least 40% sourced from the US or its free-trade partners, it won't qualify for a federal tax credit.

But wait there's more -- much more

Doubling down on the previous two new rules is one governing the critical materials content in any qualified EV, 40% of which must come from US sources or from countries with which the US has a free trade agreement. That sourcing percentage increases to 50% during 2024, 60% during 2025, 70% in 2026 and 80% starting in 2027. Tesla is among the carmakers that have recently been busily locking down battery supply deals wherever it can find them.

I love used cars and so does Uncle Sam

I'm a big fan of late-model used cars so I'm pleased with the tax credit of $4,000 or 30% of the purchase price on used EVs that cost $25,000 or less. There are separate buyer income limits for used cars of $75,000 for a single filer, $112,500 for a head of household and $150,000 for joint filers.

Not just pure electrics

The new program also embraces plug-in hybrids as long as they have a battery of 7kWh capacity or greater, which is easy to exceed with vehicles like a 2022 Toyota RAV4 Prime PHEV that has an 18kWh battery or a 2022 Ford Escape PHEV with a 14kWh battery. Be careful with an older plug-in hybrid, though, as they may have smaller batteries that don't quite make the cut. The IRS maintains a list of all plug-in vehicles that qualify for a federal tax credit.

A Toyota RAV4 Prime is a plug-in hybrid that may also qualify for a healthy federal tax credit, not just cars that are pure electric.