Enlarge / A row of Tesla Model 3s awaits export from the company's factory in Shanghai, China. (credit: Zhang Hengwei/China News Service via Getty Images)
All versions of the Tesla Model 3 sedan now qualify for the full IRS clean vehicle tax credit. Tesla CEO Elon Musk used Twitter to share the news last week, but it has now been confirmed by the federal government on its consumer-facing fueleconomy.gov site. However, given Tesla's lack of a communications department, it's unclear exactly what has changed that allows this electric vehicle to qualify once again.
Until the end of 2022, the IRS offered a tax credit of up to $7,500 for qualifying plug-in vehicles. The size of the credit was based on battery capacity, and there was a provision to sunset the tax credit for a given manufacturer once it sold more than 200,000 plug-in vehicles. As Tesla only sells plug-in vehicles, it was the first to hit this cap, reaching that milestone in the second quarter of 2018. (General Motors was the only other OEM to also pass this milestone; it did so at the end of 2018.)
All that changed at the start of this year, thanks to the Inflation Reduction Act. Now the tax credit applies to clean vehicles rather than plug-in vehicles, allowing a credit for hydrogen fuel cell EVs as well as plug-in hybrid and battery EVs. And there's no more sunset, and Tesla and GM vehicles are not disqualified due to sales success. As before, it's a tax credit, so the filer needs to have at least as large a tax liability as the credit.
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