When is an SUV not an SUV? Automakers fear 2023 tax breaks for electric cars could confuse car buyers

When is an SUV not an SUV? That depends on who you ask — and it’s a question that consumers interested in the recently expanded clean vehicle tax credit should take a close look at as the IRS decides whether newly purchased vehicles qualify. The answer may not be as simple as it seems.

The Inflation, Tax, Climate, and Health Care Act passed last year includes key tax credit on new (up to $7,500) and used (up to $4,000) clean cars. For pleasure 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 is set to publish further guidance on battery source requirements in March, but for now it’s the vehicle classification requirement that is causing some car companies to worry.

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The all-electric 2023 Cadillac Lyriq

Cadillac website


The potential confusion for consumers begins with the classification of vehicles. For example, the new Cadillac Lyriq EV qualifies for the Clean Vehicle Tax Credit under IRS guidelines, but only as a car, not as an SUV. Cadillac markets the Lyriq as an SUV, but under its current classification as a car and with an MSRP of just over $62,000, the vehicle is excluded from a key tax break. That’s because cars and other vehicles with an MSRP of up to $55,000 qualify for the credit. The Lyriq would only be eligible for a tax credit on its price if it were classified as an environmentally friendly SUV, pickup truck or van that carries a maximum retail price of $80,000.

A Treasury spokesman told CBS News that the agency did not create new guidelines for vehicle classification, but instead used current corporate average fuel economy (CAFE) standards to determine vehicle types and their eligibility for the tax credit. The official emphasized that car manufacturers already know how vehicles are classified according to government guidelines.

Such an explanation may confuse potential electric vehicle consumers, but a spokesman for the Ministry of Finance stressed that the government regulations offer “clear criteria” to delineate the differences between SUVs and cars. In accordance with Kelly’s Blue Book, some vehicles may not have the correct dimensions, angles, drivetrain (such as four-wheel drive), or minimum weight to meet government guidelines to qualify as an SUV for the tax credit. The Lyriq doesn’t meet the curb weight requirement of 6,000 pounds and doesn’t 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, refuses to classify the Lyriq and has asked the Treasury Department to reconsider its position.

“[The] The Cadillac Lyriq is an electric vehicle made in the United States that is not currently eligible for the tax credit, a GM spokesman said in a statement to CBS News. “The tax credit for electric SUVs is capped at MSRP [$80,000]. However, while the Cadillac Lyriq is listed as an SUV by the Environmental Protection Agency and the Department of Energy at fueleconomy.govThe Treasury, which administers the tax credit, currently classifies the Lyriq, as well as a number of vehicles made by other automakers, as passenger cars,” the statement said.

GM is not the only company upset by the classification of the tax credit. Tesla CEO Elon Musk also expressed his displeasure on Twitter last week.

Tesla’s five-seat Model Y didn’t meet the MSRP limit because it’s classified as a passenger car on the IRS website. But the seven-seat Model Y does qualify at an MSRP of $80,000. However, the Model Y’s base price is now just over $52,000 behind the Tesla reduce prices of some of his cars this month, which will bring him up to the $55,000 limit for passenger cars. The IRS newsletter notes that vehicle descriptions on window price stickers or on Fueconomy.gov may not match the vehicle classification for the tax credit.

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Ford Escape plug-in hybrid 2023.

Ford.com


Other automakers, such as Volkswagen and Ford, also sell vehicles as SUVs that qualify for the tax credit, but the IRS classifies them as cars. However, unlike the Lyriq, the Ford Escape hybrid and the Volkswagen ID.4 both have starting prices below the $55,000 MSRP for passenger cars, so they’ll qualify for the tax credit anyway.

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2023 Volkswagen ID.4

VW.com


But even if the vehicle meets the requirements, the car buyer may not. The IRS has established income requirements for both new and is used Purchase of electric vehicles, allowing couples with an annual combined income of $300,000 to qualify for the credit, as well as individuals earning up to $150,000 and heads of households with a maximum income of $225,000.

There are lower income requirements for used cars: a maximum adjusted gross income of $150,000 for married couples, $112,500 for heads of household, and $75,000 for everyone else.

The IRS web page notes that more qualified clean vehicles will be added on an ongoing basis.

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