The Internal Revenue Service (IRS) has issued detailed guidance on the clean vehicle credit for both new and used clean vehicles, which is important for manufacturers, dealers, sellers, and taxpayers to understand.
What is – and What Qualifies for – the Electric Vehicle Tax Credit?
It is a nonrefundable tax credit offered to taxpayers who purchase qualifying electric or plug-in hybrid vehicles of $7500 for new electric vehicles (EVs) and up to $4000 (but no more than 30% of the sale price) for used EVs. To qualify, your income must fall below certain levels and the vehicle must be below an established price cap.
To qualify in terms of income, you can use your modified adjusted gross income (MAGI) from the year you purchase the vehicle, or the year prior to that, so if your income is too high in the year of purchase, but within limits the year before, you can still qualify.
The income limits are:
New Electric Vehicles
- Single and married filing separately: $150k
- Married filing jointly: $300k
- Head of household: $225k
Used Electric Vehicles
- Single and married filing separately: $75k
- Married filing jointly: $150k
- Head of household: $112.5k
The price cap limits are:
- New vans, SUVs and pickup trucks: $80k MSRP
- New sedans and passenger cars: $55k MSRP
- Used vehicles: $25k MSRP
Other Used EV Qualifications
- Model must be at least two years old
- Must be a plug-in electric or fuel cell with at least 7 kilowatt hours of battery capacity
- Vehicle must weigh less than 14k pounds
- Only the first transfer of the vehicle qualifies
- Final assembly of the vehicle must have occurred in North America. (This is a qualification for new vehicles too.)
What’s New in the Guidance
An updated Fact Sheet (FS-2023-22), provides a clear roadmap for the following:
- Registration processes for manufacturers, dealers, and sellers.
- Procedures for taxpayers to elect credit transfers to dealers after 2023.
- Rules concerning the inclusion and verification of the vehicle identification number (VIN) on taxpayer returns.
Looking Ahead: Proposed Regulations
These proposed regulations will go into effect for tax years starting after their publication, with specific provisions for credit transfers to dealers becoming applicable from January 1, 2024.
Clarifications for Clean Vehicle Credits
In response to the confusion around VIN requirements, the IRS clarifies that missing or invalid VINs on returns will be considered as omissions. The guidance also specifies that income tax returns must include Form 8936 for the year the clean vehicle is placed in service.
Sale Cancellations and Vehicle Returns
In the event of a sale cancellation or vehicle return within 30 days of service, the taxpayer will not be eligible for the credit. The regulations further outline the implications for taxpayers who elect to transfer the clean vehicle credit to a dealer.
Registration and Reporting Updates
Manufacturers, dealers, and sellers must register through the IRS Energy Credits Online Portal, with specific reporting requirements post-sale. The IRS site also gives guidance on the advance credit payment procedure for dealers along with the tax compliance requirements and process for disbursing advance payments.
Call for Comments
The IRS is open to comments on the proposed regulations until December 11, 2023, and stakeholders are encouraged to participate in shaping these regulations.
Stay Informed and Get Help
This new guidance is a significant update for all parties involved in clean vehicle transactions. We can help you understand these changes and ensure your green vehicle purchase aligns with the new requirements. For further details and support on how these updates may impact you or your business, please get in touch with us.