The Tesla Model Y hasn’t been eligible for the federal electric vehicle (EV) tax credit for quite some time now, but it’s possible it could qualify again in 2023.
The federal government has offered various tax incentives for purchasing new EVs and plug-in hybrids since 2010, with possible tax credits up to $7,500. One of the stipulations, however, was that the tax credit would be phased out after a particular manufacturer sold a certain number of vehicles, which Tesla managed to reach several years ago.
However, updated requirements could make the Model Y and other Teslas eligible for tax credits again in 2023, but it will depend on certain factors—so, should you buy one now, wait, or go with another option?
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Is the Tesla Model Y still eligible for federal tax credit?
While the Tesla Model Y is an EV, it’s no longer eligible for any federal tax credits right now—but it may become eligible again in 2023.
In 2010, the United States government introduced a tax incentive for EVs: If you purchased a new EV, you could receive a tax credit of up to $7,500. The exact amount could also vary, depending on factors like the vehicle’s battery capacity.
However, one lesser-known fact is that this credit only applies until a particular vehicle manufacturer surpasses 200,000 EV sales. Tesla actually passed that threshold back in 2018.
That initiated a phase-out period, which temporarily halved the credit available to Tesla drivers to $3,750, and then, in 2019, reduced it to $1,875 until it expired completely at the end of that year.
However, there’s good news! If you hold out just a little longer, the Inflation Reduction Act (IRA) of 2022 eliminates that 200,000-vehicle sale threshold, which may make some Teslas eligible all over again starting in 2023.
That is, as long as they’re able to meet other new requirements—but more on that below.
What you should know about the new federal EV tax credit requirements
Earlier in 2022, qualifying for the federal incentive became a little more complicated: the IRA was signed into law, making EV tax incentives available only to vehicle manufacturers whose final assembly takes place in North America.
That further disqualified other vehicle manufacturers, like
Toyota, which had just reached its 200,000-sale mark in June of 2022. You can find the list of vehicles that currently “may” (in the IRS’s words) make that final assembly cut on the
Alternative Fuels Data Center (AFDC) website. Some vehicle models are made in multiple locations, which can affect a particular vehicle’s eligibility.
The final assembly rule became effective as of Aug.16, 2022, so if you purchased a qualifying EV before the final assembly rule went into effect, it won’t affect your ability to claim the credit, even if the delivery occurred afterward. Other than the final assembly requirement, the previous federal EV tax credit requirements apply from Aug. 16 to Dec. 31 before additional IRA changes take effect.
Starting Jan. 1, 2023, additional requirements from the IRA will be gradually phased in, but many of the details regarding what that will look like are still being finalized.
As it stands now, it won’t be enough to simply purchase the right vehicle from the right manufacturer when the changes take effect—you’ll have to meet additional requirements to qualify for the federal tax credit:
- Income caps for new vehicles: The maximum income limit to claim a tax credit on new EVs going forward will be $150,000 for single filers, $225,000 for heads of households, and $300,000 for joint filers.
- Income caps for used vehicles: Eligible for tax credits for the first time, used EVs will have income requirements, too: a maximum of $75,000 for single filers, $112,000 for heads of households, and $150,000 for joint filers.
- Vehicle price caps: Whether you qualify for a tax credit also depends on the type of vehicle you choose and how much it costs. Pickup trucks, SUVs, and vans must cost less than $80,000, while sedans are capped at $55,000. Used EVs must cost under $25,000.
- Battery requirements: Here’s one of the trickier qualifying factors: to qualify for a tax credit, the EV battery’s materials must be made and assembled in North America, or from materials sourced from a U.S. free-trade partner or through recycling electronic equipment in North America. If it meets both of these criteria, you could be eligible for the full $7,500 credit on a new EV. If it meets only one, you’d get half: $3,750.
The new vehicle price requirements mean not all Teslas will be eligible for tax credits. But with a starting MSRP of $65,990, the 2023 Tesla Model Y might be one of the exceptions.
Another word of warning: if an EV doesn’t meet the new battery requirements, it won’t be eligible for a tax credit at all. This will easily be one of the more challenging criteria for vehicle manufacturers to satisfy, especially right away.
Plus, certain perks, like being able to claim your credit right from the dealership instead of waiting for your tax return, won’t be available until 2024, so it will be important to keep an eye out for more guidance and verify that the EV you’re interested in is eligible for the tax credit before going ahead with a purchase.
Other electric vehicle incentives
Whether or not you’re able to claim a federal tax credit for a Tesla Model Y, it’s possible you could take advantage of other available incentives at the state or city level, like tax credits or rebates. Some electric utility providers provide incentives for certain actions, too, like installing a Level 2 charging setup in your garage.
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Is the Tesla Model Y still worth buying?
It depends on what you’re looking for in a vehicle—and how long you’re willing to wait to see if it officially qualifies for a tax credit.
The 2022 Tesla Model Y had a 78/100 overall rating from J.D. Power and an 8/10 rating from Car and Driver. J.D. Power ranked the 2022 model at #4 among its list of compact premium SUVs.
Some of the Model Y’s highlighted strengths include a roomy interior, a competitive estimated driving range of up to 330 miles on a Long Range’s full charge, the option for a third row of seating, and an overall five-star safety rating from the
National Highway Traffic Safety Administration (NHTSA).
At the same time, it has been met with certain criticisms, like its touchscreen infotainment system that some might find difficult or inconvenient to use (and it controls nearly everything), what Car and Driver calls an “iffy build quality,” and seating that can start to feel stiff and uncomfortable on long trips. Additionally, Consumer Reports predicts the Model Y will be less reliable over time than the average vehicle.
Before settling on the Model Y for yourself, compare its specs and price tag with other EV SUVs on the market to decide whether it’s the most ideal fit for you.
Car loans for Tesla 2022
What to buy instead of a Tesla Model Y
So, what exactly should you be comparing your Model Y to? You’ve got plenty of EV SUVs to choose from.
If you’re looking for an all-electric SUV that hasn’t hit its 200,000 sales cap with a final assembly in North America, the Audi Q5, the Ford Mustang Mach-E, the Rivian R1S, and the Jeep Grand Cherokee 4xe are all potential options for now.
Cadillac, Chevrolet, and GMC have vehicle’s that make the AFDC’s list, but their SUVs have met their sales caps already, so you’ll either get reduced or no tax credit in 2022, or you could wait until the sales cap requirement is lifted to see if they’ll still qualify.
In the meantime, here are a few more vehicles to add to your list.
If you really want the federal tax credit: 2022 Ford Escape PHEV
Starting price: $36,950
Possible tax credit: $7,500
Many of the SUV’s on the AFDC’s first assembly in North America list have already met their sales cap requirements, but the 2022 Ford Escape PHEV is one that remains available. Even better, its price tag is comparable to many gasoline-powered crossover SUVs on the market—or even better if you’re after that tax credit.
As a plug-in hybrid electric vehicle (PHEV), the 2022 Ford Escape PHEV gets a combined fuel economy of 105 MPGe and a combined 40 mpg on gasoline alone. It has an all-electric driving range of 37 miles and a total range of up to 520 miles. By the
EPA’s estimates, that could save a driver about $5,500 in fuel costs over the course of five years!
If you just want a great PHEV: 2022 Hyundai Tucson SEL PHEV
Starting price: $36,695
If you want the fuel flexibility that a PHEV can offer but qualifying for the federal tax credit isn’t your top priority, there’s also the 2022 Hyundai Tucson SEL PHEV.
One plus about the 2022 Tucson plug-in hybrid option is that all-wheel drive is standard. It’s capable of traveling up to 33 miles on electricity alone with a total gasoline and electric range of up to 420 miles. Its combined electric and gas fuel economy is 80 MPGe.
It’s warranty is pretty competitive, too—it comes with:
- A five-year or 60,000-mile limited warranty
- A 10-year or 100,00-mile powertrain warranty
- Complimentary maintenance for up to three years or 36,000 miles
If you’re ready to go all-electric: 2022 Hyundai Ioniq 5
Starting price: $41,245
Maximum range: up to 303 miles
But what if you want to go all-in on an all-electric SUV? The 2022 Hyundai Ioniq is one you’ll want to look into.
Although it won’t qualify for the federal tax credit, the 2022 Hyundai Ioniq has quickly become a crowd favorite on the EV SUV scene. U.S. News ranks the 2022 model #1 among EV SUVs, and Car and Driver awarded it as 2022 EV Car of the Year.
So, what’s so great about it? Depending on what options you select, it offers up to a generous 320 horsepower, meaning you don’t have to compromise on performance. It also has some of the quicker charging speeds available on an SUV with up to 350kW for DC-fast charging. At-home Level 2 charging could take between six and eight-and-a-half hours, depending on its configurations.
How to save on electric car insurance costs
If you’re considering upgrading to an EV like the Tesla Model Y, you’ll probably need to recharge your
car insurancecoverage, too—and it’s quite possible that might mean a more expensive premium.
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Whether or not your pick qualifies for a tax credit, car insurance shopping with Jerry could put a little extra cash back in your pocket—in fact, the average driver who makes a switch saves over $800 per year on their car insurance!
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