The 2023 Volvo XC90 Recharge is now eligible for the maximum $7,500 federal tax credit, thanks to its increase in battery capacity and on-shore production.

The federal government has offered tax incentives to plug-in hybrid and

electric car

buyers since 2010, with credits from $2,500 to $7,500 depending on battery capacity.

The debut model of the XC90 Recharge only had a 9.2 kWh battery, which limited its tax eligibility to around $4,500. But the new 2023 model has more than doubled the battery capacity, bringing the output to 18.8 kWh and making the XC90 Recharge eligible for the full $7,500 credit!

Follow along as we elaborate further on how the Volvo XC90 Recharge gained eligibility for the maximum federal tax credit. But fair warning—the steep MSRP of this PHEV makes the story a little less compelling. So to keep everyone involved, we’ll also discuss some alternate green-energy cars that are more budget-friendly.

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Is the Volvo XC90 Recharge still eligible for the federal tax credit?

According to

Fueleconomy.gov

, the Volvo XC90 Recharge is eligible for a federal tax credit as a plug-in electric vehicle (PHEV). In fact, the 2023 model now qualifies for the maximum $7,500 credit under the following

battery requirements imposed by the IRS

$2,917 for a vehicle with a battery capacity of at least 5 kWh

Plus $417 for each kWh of capacity over 5 kWh

With these requirements in mind, here’s how the Volvo XC90 Recharge’s eligibility has roughly shifted with its

increasing battery capacity

2016 to 2017 Volvo XC90 Recharge (9.2 kWh): $4,500

2018 to 2019 Volvo XC90 Recharge (10.4 kWh): $5,000

2020 to 2022 Volvo XC90 Recharge (11.6 kWh): $5,500

2023 Volvo XC90 Recharge (18.8 kWh): $7,500 (max)

So if you want to get the tax credit you deserve for driving a PHEV, you’ll need to fill out

Form 8936

and claim the credit on your regular tax return. And remember, this is a refund and not a deduction. So it's money back in your pocket!

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How to get a hybrid or electric car tax credit

What you should know about the new federal EV tax credit requirements

Battery capacity isn’t the only factor the federal government considers when determining tax credit eligibility for PHEVs and electric vehicles.

One new requirement is that the vehicle must undergo final assembly in North America. The vast majority of Volvo cars are assembled in Sweden, where the automaker was founded. Fortunately, all XC90 Recharges that are 2022 or newer have been built at the brand-new Volvo manufacturing plant in Ridgedale, South Carolina—this is an intentional move, as it helps maintain tax eligibility and makes the XC90 Recharge more competitive in the growing PHEV and electric vehicle market.

Another requirement is that the automaker must have less than 200,000 total electric vehicle sales to remain eligible for tax credits. The idea is that automakers will be able to lower costs as sales increase, negating the necessity for a tax credit to draw in customers.

Toyota

recently passed the mark, with

Nissan

and

Ford

expected to hit it in 2023. But Volvo is still well under this threshold, so all good here!

That last requirement that we’ll touch on (consult your Volvo dealership or tax professional for eligibility confirmation) has nothing to do with the vehicle. There are income brackets that limit tax credit eligibility: single car buyers only qualify if they make up to $150,000 a year, while buyers who file taxes jointly with a spouse have an income cap of $300,000.

Other electric vehicle incentives

First and foremost, the savings at the gas pump are a clear incentive for purchasing a PHEV or electric vehicle. The 2023 Volvo XC90 Recharge can now achieve 32 miles of pure-electric range before switching to gasoline. So even if you live in the suburbs, you may be able to complete your round-trip commute without ever tapping into your fuel tank!

There are also state tax credits that are available to PHEV and electric vehicle buyers. All states will vary, so check out

Volvo’s State Incentives drop-down menu

to see all available incentives for where you live.

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Is the Volvo XC90 Recharge still worth buying?

The 2023 Volvo XC90 Recharge is no doubt a show-stopper! Here are some notable features and performance specifications that helped it achieve a 9.5/10 rating from Car and Driver:

455-hp T8 engine (zero-to-sixty in 4.5 seconds)

32 miles of pure-electric range and 58 combined MPGe

Standard all-wheel-drive

Passenger capacity of six or seven

Maximum cargo space of 65.5 cubic feet

Digital dashboard and tablet-like 9.0-inch touchscreen infotainment system

Simple yet luxurious interior aesthetics

Gorgeous bright and dark exterior themes

Three trim levels (Core, Plus, Ultimate) with additional luxury and technology features

Available climate package: heated steering wheel and heated rear seats

Available lounge package: suede headliner and backrest massage front seats

But here’s the catch—the starting MSRP for the 2023 Volvo XC90 Recharge is $72,995. So even after the $7,500 tax credit, you’re still looking at a hefty price tag.

Is it worth it? Well, that depends. If you’re buying the XC90 Recharge as a Volvo first and a PHEV second, then it’s definitely worth it! However, plenty of other PHEVs are more efficient for a fraction of the cost—check them out below.

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What to buy instead of a Volvo XC90 Recharge

If the Volvo XC90 Recharge is a little out of your budget or you want better efficiency, here are a few alternatives. However, you’ll notice that the new federal requirements for tax credit eligibility influenced our recommendations.

If you want a more affordable SUV PHEV: 2023 Ford Escape PHEV

2023 MSRP: $38,500

Efficiency: 37 miles electric-only / 105 MPGe / 40 mpg combined

Tax credit eligibility: $6,843

There are

very limited choices for SUV PHEVs that still qualify for tax credits

under the new federal requirement for final assembly in the USA. However, the Ford Escape PHEV stands tall on the list, especially with

KIA

and

Toyota

removed from the competition pool (at least from an after-tax-credit price point).

While it may not be as luxurious as the Volvo XC90 Recharge, it offers convenient storage space and more impressive efficiency metrics—all for about half the price! But you may want to hop on this deal fast because Ford is bound to hit the 200,000 EV sales threshold for tax credit eligibility soon.

If you still want a Volvo PHEV: 2023 Volvo S60 Recharge

2023 starting MSRP: $51,250

Efficiency: 41 miles electric-only / 74 MPGe / 31 mpg combined

Tax credit eligibility: $7,500

At least for the time being, the only Volvo vehicle (other than the XC90 Recharge) produced at the South Carolina plant is the Volvo S60 Recharge—making it eligible for federal tax credits.

Yes, it is a sedan. But with an impressive 41 miles of all-electric range and a reasonable price point for a luxury vehicle, the value is undeniable!

If you’re ready to go all-electric: 2023 Hyundai Ioniq 5

2023 MSRP: $41,450

Efficiency: 202 to 303 miles electric-only / 101 to 114 MPGe

Tax credit eligibility: N/A

The Hyundai Ioniq 5 has an unprecedented triple win at the

2022 World Car Awards

: World Car of the Year, World Electric Vehicle of the Year, and World Car Design of the Year.

Unfortunately, it no longer qualifies for federal tax as it is only manufactured in select Asian countries, including South Korea, Indonesia, Singapore, and India. However, even without the tax credit, the performance and aesthetics are worth the price—just look at the trophy case!

But the tax credit for the Ioniq 5 might not be gone for long! Hyundai has made a $5.5 billion investment to build an EV production plant in Savannah, Georgia. So it's fair to project that the Hyundai Ioniq 5 will only become more affordable and more accessible to U.S. drivers in the near future.

MORE: How to choose an eco-friendly car

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