Motorists will soon be able to claim $7,500 in tax credits upfront when they buy an electric car – rather than waiting months for a tax return

Motorists will soon be able to get a $7,500 federal tax credit off the sticker price of an electric car at the dealership, rather than waiting for a tax return.

The Biden administration announced that starting January 1, 2024, Americans who buy an eligible car will be able to cut $7,500 off the price of a new EV or up to $4,000 off the cost of a used EV.

The tax credit is a key element of the Government’s Inflation Reduction Act – green legislation aimed at accelerating the shift to electric cars that have historically been too expensive for the average consumer.

Ten models – including plug-in hybrids – are eligible for the full sum of money, while a further seven will entitle buyers to $3,750.

Currently, drivers must claim the tax credit back through a tax return – a process that can take several months.

Car dealers will then be reimbursed by the government within 72 hours of the car being sold, according to the Treasury.

“For the first time, the Inflation Reduction Act enables consumers to reduce the upfront cost of a clean vehicle, expand consumer choices and help auto dealers grow their businesses,” said Laurel Blatchford, Treasury’s chief implementation officer for the Inflation Reduction Act, said. in a statement.

“The IRS has focused on streamlining this process for auto dealers as part of its commitment to improve service and help taxpayers claim the credits for which they are eligible.”

Most of the eligible cars are made by the ‘big three’ EV carmakers in the US – Ford, General Motors and Stellantis – plus Tesla and German carmaker Volkswagen.

The eligibility rules are filled with complex criteria that determine how a certain percentage of battery parts must come from the US to qualify for the full $7,500 rebate.

This means many foreign-made vehicles are not eligible for now.

The Chevrolet Equinox, pictured, is one of those that qualifies for the full $7,500 in credits

There are also some price limits that determine whether or not an EV is eligible for the full tax credit.

The pickups, vans and SUVs with a suggested retail price (MSRP) of more than $80,000 will not qualify for the credit.

For cars, the MSRP limit is $55,000 – but many of the vehicles fall within these limits anyway.

For example, a Chevrolet Bolt EV has a starting MSRP of around $26,500, and the 2024 Chevrolet Equinox will start around $30,000 when it goes on sale later this fall.

Meanwhile, the 2024 Chrysler Pacifica Hybrid starts at about $52,495.

Used cars — defined as any previously owned vehicle older than two years — have a separate tax credit of either up to $4,000 or 30 percent of the price of the sale.

The Tesla Model 3 performance qualified for the full credit, but the Standard Range version is only eligible for half of it

Providing consumers with subsidies up front could help encourage more Americans to invest in an electric vehicle.

A 2022 study from George Washington University, cited by CNNfound that the vast majority of American car buyers prefer to get cash back, rather than wait to file their taxes and claim credits there.

The researchers also found that preference was even greater for lower-income households, used vehicle buyers and those on lower budgets.

Electric cars tend to be more expensive than their gas counterparts, but can be cheaper to run.

According to data from Cox MotorThe average transaction price for EVs was $53,469 in July 2023, compared to gas-powered vehicles at $48,334.