Electric vehicles? Shop carefully

Many of them don’t qualify for federal tax breaks

If you’re expecting a nice federal tax credit for purchasing an electric car, you’d better check your shopping list. The federal government on Friday issued a new list of vehicles eligible for the credits, which take effect Tuesday, and quite a few models aren’t on it. In addition, some vehicles are only eligible for half of the $7,500 subsidy.

For instance, buyers will get the full tax break if they purchase a Tesla Model 3 Performance version with four-wheel drive, with a list price of $53,000. But they’ll get only a $3,750 credit for the $42,000 Tesla Model 3 rear-wheel drive car. And if you choose one of the least expensive EVs, the $28,000 Nissan Leaf, you won’t get any tax break at all.

In all, 22 all-electric or plugin hybrid vehicles are eligible for some sort of tax credit under the new standards. But that rules out dozens of other cars, including some, like the Leaf, that were eligible under the old rules.

What are the standards all about? China, mostly.

The Biden administration wants battery-powered cars to make up half of all new car sales by 2030. But the administration also wants to prevent billions of US dollars flowing to Chinese manufacturers, who dominate nearly every part of the supply chain for the lithium-ion batteries that power EVs. So it has set up the tax breaks to favor cars with batteries made at least partially in the United States.

If 50 percent or more of the car’s battery was manufactured in the United States, the purchaser can claim a $3,750 tax break. And if 40 percent or more of the minerals in the battery — such as lithium, nickel, or cobalt — were mined or processed domestically, or in a country with which the United States has a free-trade agreement, such as Japan, there’s another $3,750.

The percentages of homegrown batteries in these standards will increase over time, in a bid to encourage more battery production domestically. For instance, eligible vehicles for the 2027 model year must have batteries made 80 percent in the United States, with 80 percent domestically produced minerals.

To be eligible, vehicles also must be assembled in North America and have a sticker price below $80,000 for an SUV or $55,000 for a sedan, wagon, or hatchback. There are income limits as well. Spouses who file their taxes jointly must have an adjusted gross income of no more than $300,000 to qualify for a credit. Heads of household must earn less than $225,000

and individual filers less than $150,000.

In addition, these are tax credits that offset the purchaser’s federal income tax. That means the benefit can only be received after the buyer files a tax return next year. And the benefit is limited by the amount of income tax owed. Someone who owes $5,000 will only get a $5,000 credit, even if his or her vehicle was eligible for $7,500.

Starting in 2024, car buyers will be able to transfer their tax credit to the auto dealer, who can then give them an upfront price cut on the car. The Internal Revenue Service has not yet provided detailed guidance on how this will work.

Massachusetts residents are also eligible for a $3,500 statefunded rebate on a new EV, or $1,500 for a new plug-in hybrid vehicle.

For now, only a few vehicles are eligible for the federal tax credits. But the list will expand in coming years, said Rebecca Rydzewski, research manager of economic and industry insights at Detroit-based Cox Automotive.

“As new models come out, as the supply chain in North America grows, we’re going to see more models added to that list,” Rydzewski said.

Nissan, for instance, said it’s working hard to get the Leaf back on the list of approved vehicles. “We are working closely with our suppliers and are hopeful that Leaf will qualify for at least partial credit in the future,” Nissan said in a statement to the Globe.

There’s a loophole in the new rules. Car dealers can get a $7,500 credit for the purchase of an electric car, even if the vehicle doesn’t meet the standard for US-made battery components. The dealer can thus buy electric cars, lease them to end users, and pass on the tax credits to the consumers. Some companies whose vehicles aren’t eligible for consumer tax credits are touting this option. For instance, Hyundai says it’ll pass on the full $7,500 credit to people who lease its EVs, such as the Ioniq 5.

Rydzewski said the leasing loophole was inserted to mollify US trading partners in Japan and the European Union, who argued that strict domestic manufacturing requirements unfairly barred their vehicles from the US market.

As carmakers scramble to make more of their EVs eligible for the tax breaks, some consumers might decide to hold off on purchasing a car. But Joel Levin, executive director of the nonprofit group Plug In America, doesn’t believe that’s going to happen.

“The price of cars — all cars, not just EVs — is expensive and going up, and so I don’t know that there is a benefit to waiting a year,” Levin said. “When people need a car, they need a car.”

Still, Robert O’Koniewski, executive vice president of the Massachusetts State Automobile Dealers Association, predicted that consumers would find the new standards “confusing and possibly anger-inducing” because so few EVs made the cut.

“Of the 95 EVs that one can buy today at a Massachusetts dealership,” said O’Koniewski, “less than a quarter will qualify.”