When is an SUV not an SUV? It depends on who you ask — and it’s a question consumers interested in the newly expanded clean-vehicle tax credit should consider carefully, because it’s the IRS that decides whether the cars they come from buy will be eligible or not. The answer may not be as simple as it seems.
The Inflation Reduction Act, the Tax, Climate and Health Care Act enacted last year, includes a keyfor the purchase of clean new (up to $7,500) and used (up to $4,000) vehicles. To meet the tax credit requirements, vehicles in service after December 31, 2022 must meet MSRP limits based on body type and weight and must undergo final assembly in North America. The Treasury Department is set to release additional guidance on battery source requirements in March, but for now, it’s the vehicle classification requirement that worries some automakers.
The potential confusion for consumers starts with how vehicles are classified. For example, Cadillac’s new Lyriq EV qualifies for the clean vehicle tax credit under IRS guidelines, but only as a car, not an SUV. Cadillac markets the Lyriq as an SUV, but under its current classification as a car and with an MSRP just over $62,000, the vehicle is excluded from the key tax credit. In fact, cars and other vehicles with an MSRP of up to $55,000 are eligible for the credit. The Lyriq would only qualify for a tax credit at its list price if it was classified as a clean-energy SUV, pickup or van, which caps at an MSRP of $80,000.
A Treasury official told CBS News that the agency did not create new vehicle classification guidelines, but instead used current average enterprise fuel economy (CAFE) standards to determine vehicle types. and their eligibility for the tax credit. The official pointed out that automakers are already aware of how vehicles are classified according to government guidelines.
This explanation may confuse potential consumers of electric cars, but a Treasury official pointed out that government regulations offer “clear criteria” for defining the differences between SUVs and cars. According to Kelly Blue Book, some vehicles may not have the correct measurements, angles, drivetrain (eg, all-wheel drive), or minimum weight to meet government guidelines to qualify as an SUV for credit. of tax. The Lyriq does not meet the weight requirement, which is 6,000 pounds, nor does it have all-wheel drive.
And some automakers complain that different federal government departments don’t list vehicles consistently. For example, GM, Cadillac’s parent company, is pushing back against Lyriq’s classification and has asked the Treasury Department to reconsider its position.
“[The] Cadillac Lyriq is a union-built electric vehicle in the United States that is not currently eligible for the tax credit, a GM spokesperson told CBS News in a statement. “The Electric SUV Tax Credit has an MSRP cap of [$80,000]. However, while the Cadillac Lyriq is listed as an SUV by the Environmental Protection Agency and Department of Energy on fueleconomy.gov, the Treasury Department, which administers the tax credit, currently classifies Lyriq as well as a number of vehicles made by other vehicles. manufacturers as passenger cars,” the statement said.
GM isn’t the only company upset over the classification of tax credits. Tesla CEO Elon Musk also expressed his displeasure in a tweet last week.
Tesla’s five-seat version of the Model Y did not qualify for the SUV MSRP cap because it is classified as a passenger car on the IRS website. But the seven-seat Model Y meets the $80,000 MSRP qualification. However, the base price of the Model Y is now slightly above $52,000 after Teslaof some of its vehicles this month, which would push it under the $55,000 limit for passenger cars. An IRS fact sheet says vehicle descriptions on window price stickers or on fueleconomy.gov may not match the vehicle classification for the tax credit.
Other automakers, like Volkswagen and Ford, also have vehicles marketed as SUVs eligible for the tax credit, but the IRS classifies them as cars. Unlike the Lyriq, however, the Ford Escape plug-in hybrid and the Volkswagen ID.4 both have starting prices below the MSRP limit of $55,000 for passenger cars, so they will be eligible for the credit anyway. tax.
But even if the vehicle is eligible, the car buyer may not be. The IRS has set income requirements for new and used electric vehicle purchases, allowing couples with a joint annual income of $300,000 to claim the credit, as well as people earning up to $150,000 and heads of households with a maximum income of $225,000.
There are lower income requirements for used vehicles: a maximum adjusted gross income of $150,000 for married couples, $112,500 for heads of households and $75,000 for everyone else.
An IRS webpage says more qualified clean vehicles will continue to be added on an ongoing basis.