Treasury Department changes classifications for clean vehicle tax credit eligibility

Feb. 3 (UPI) -- The United States Treasury Department on Friday updated the vehicle classification standard, which is used to determine the Manufacturer Suggested Retail Price limitation and whether a vehicle qualifies for tax credits under the Inflation Reduction Act.

The Inflation Reduction Act allows for a $7,500 tax credit for certain cleaner vehicles.

Vehicles were previously classified under the Environmental Protection Agency's Corporate Average Fuel Economy system and will now be classified by the agency's Fuel Economy Labeling system.

Certain vehicles with good fuel consumption rates were classified as sedans under the previous system, which disqualified them from the tax credit due to pricing.

There is a price cap on eligible vehicles of $55,000 for Sedans, and $80,000 for SUVs. The new system has changed the classification of the GM Cadillac Lyric and the Tesla Model Y from "Sedan" to "SUV."

The change means both vehicles, which exceeded the $55,000 Sedan cap, now fall below the $80,000 SUV cap, and therefore qualify for tax credits.