Want to Buy an Electric Vehicle? Here's Why You Should Do It Before 2023

This savings opportunity is going to be a lot more difficult to take advantage of next year.

Electric vehicles have a ton of long-term benefits, both for the environment and your bank account. But at present, there's still a lot of barriers preventing them from becoming the dominant vehicles on the road. First, they're still relatively new and there aren't that many out there. That scarcity also contributes to the second problem, which is their really high price tag.

For the foreseeable future, that's just something you're going to have to live with if you plan to purchase an electric vehicle. But it could be a little easier on your wallet if you buy your car before we ring in 2023. Here's why.

There's a $7,500 tax credit on electric vehicles

President Biden signed the Inflation Reduction Act into law in August 2022. Among other things, this law created a $7,500 tax credit for those who purchase a qualifying electric vehicle.

A tax credit is a dollar-for-dollar reduction of your tax bill. So if you owe the federal government $10,000 and you get a $7,500 tax credit, you'll only owe $2,500 instead. But this particular tax credit is nonrefundable, which means if you get your tax liability down to zero, the government won't give you the rest in the form of a refund.

The law also imposed a rule, which took effect immediately on Aug. 16, 2022, that says that the final assembly of the vehicle must take place in the United States in order for the vehicle to qualify for the tax credit. That rules out a lot of European electric vehicles automatically. If you're curious as to which vehicles qualify for the credit as it stands right now, you can check out the list of eligible cars on the U.S. Department of Energy's website.

Some manufacturers also have a cap of 200,000 electric vehicle credits, and once those credits have been claimed, no one else can claim additional tax credits for that vehicle make and model. This information is also listed on the Department of Energy's website.

There are even more rules coming for 2023

That may already seem like a lot of rules, but there are even more coming next year. Beginning in 2023, taxpayers will only qualify for the full Clean Vehicle Credit if they meet the following criteria:

• At least 40% of the battery's critical materials must have been extracted or processed in the United States or a country the United States has a free trade agreement with.
• At least 50% of the value of the battery's components must be manufactured or assembled in North America.

You may still be able to get a smaller credit if you don't check both of these boxes, or you may not get anything at all. There are also limits that exclude some electric vehicles based on price, and some taxpayers may not be eligible if their income exceeds certain limits for their tax filing status.

If that sounds totally confusing to you, don't worry. The government isn't going to leave you to guess which vehicles qualify for the credit and which don't. It will issue additional guidance in the near future and should update its list of eligible vehicles so you can see at a glance whether your car qualifies.

But it's safe to say these additional requirements will shrink the list of eligible vehicles even further. So those hoping to take advantage of this tax credit are better off buying their electric vehicle right now if they can afford to do so. That way, you don't have to worry about missing out on the credit altogether when the new rules go into effect.