New clean vehicle credit, previously-owned vehicle credit and qualified commercial clean vehicles credit frequently asked questions

Source: IRS Bolded and underlined by Zaher Fallahi, Tax Attorney, PA

Background

The Inflation Reduction Act of 2022 (IRA) made several changes to the tax credit provided in § 30D of the Internal Revenue Code (Code) for qualified plug-in electric drive motor vehicles, including adding fuel cell vehicles to the § 30D tax credit (new clean vehicle credit). The IRA also added new credits for previously-owned clean vehicles under § 25E of the Code (previouslyowned clean vehicle credit) and for commercial clean vehicles under § 45W of the Code (qualified commercial clean vehicles credit).

These FAQs provide details on how the IRA revises the credit available for new clean vehicles for individuals and businesses, and information on the credit available for previously-owned clean vehicles for individuals, and the new credit for qualified commercial clean vehicles.

Topic A: Eligibility Rules for the New Clean Vehicle Credit under § 30D effective 1/1/2023 (Bolded and underlined by Zaher Fallahi, Tax attorney, CPA)

Q1. What is a new clean vehicle for purposes of the new clean vehicle credit? (updated October 6, 2023)

A1. For purposes of the new clean vehicle credit, a new clean vehicle is a clean vehicle placed in service on or after January 1, 2023, that is acquired by a taxpayer for original use. In addition, to qualify for the credit, the vehicle: • Cannot be acquired for resale; • Must be manufactured by a qualified manufacturer; • Must meet the definition of a motor vehicle under Title II of the Clean Air Act (that is, any vehicle manufactured primarily for use on public streets, roads, and highways. It must also have at least four wheels); • Must have a gross vehicle weight rating of less than 14,000 pounds; • Must be powered to a significant extent by an electric motor with a battery capacity of 7 kilowatt hours or more and must be capable of being recharged from an external source of electricity; and • Must have final assembly in North America. To find a list of eligible vehicles visit fueleconomy.gov/newtaxcredit. See Topic A FAQ 2 for additional detail. Moreover, for a taxpayer to claim the credit, the seller of a new clean vehicle must provide a report containing taxpayer and vehicle information to the taxpayer and to the IRS. See Topic B FAQs 7-9 for additional detail. Fuel cell vehicles are also new clean vehicles if (1) the original use begins with the taxpayer, (2) the final assembly is in North America, and (3) the seller of the vehicle provides a report to the taxpayer and the IRS.

Q2. Is there a list of vehicles that qualify for the new clean vehicle credit? (updated October 6, 2023)

A2. Yes. The Department of Energy hosts a purchaser-friendly version of IRS’s list of eligible clean vehicles, including battery electric, plug-in hybrid, and fuel cell vehicles, that qualified manufacturers have indicated to the IRS meet the requirements to claim the new clean vehicle credit on FuelEconomy.gov. This list will be promptly updated as additional vehicle eligibility requirements take effect and as manufacturers provide updated information. That list is available here: fueleconomy.gov/newtaxcredit. Verifying the manufacturer’s suggested retail price, final assembly, or that a specific vehicle is eligible may be necessary for certain makes and models, see Topic B FAQs 3 and 4. Final confirmation of vehicle qualification should be done at time of purchase. The seller must provide you with a report about a vehicle’s eligibility at the time of sale.

Q3. How can I confirm the final assembly of a new clean vehicle is in North America? (updated March 31, 2023)

A3. There is a clean vehicle credit requirement that vehicles be assembled in North America. The list of eligible vehicles on FuelEconomy.gov includes information about a vehicle’s final assembly. The final assembly point will be listed on the vehicle information label attached to each vehicle on a dealer’s premises. North America includes the United States (defined, for this purpose to mean the 50 states, the District of Columbia, and Puerto Rico), Canada, and Mexico for purposes of determining the location of final assembly. The VIN Decoder website for the National Highway Traffic Safety Administration (NHTSA) also provides final assembly location information. The website, including instructions, can be found at VIN Decoder.

Q4. How will I know what the vehicle identification number (VIN) is? (updated October 6, 2023)

A4. The vehicle identification number (VIN) is a 17-character number that uniquely identifies a vehicle. It is permanently attached to a vehicle in several locations, appearing on the dashboard for most passenger vehicles and on the label located on the driver’s door frame. The VIN is also located on the window sticker of new vehicles and often appears on the vehicle listing on dealers’ websites or can be obtained by calling a dealership. Once the VIN is known, the VIN can be used to confirm final assembly. See FAQ 3.

Q5. If I order a new clean vehicle in one year and don’t receive it until a subsequent year, when do I claim the credit? (added December 29, 2022)

A5. The new clean vehicle credit is claimed in the tax year that the vehicle is placed in service, meaning the tax year that includes the date the taxpayer takes delivery of the vehicle. See also Topic C FAQs 5 and 8.

Q6. What is the amount of the new clean vehicle credit? (updated March 31, 2023)

A6. Beginning January 1, 2023, eligible vehicles may qualify for a tax credit of up to $7,500. The amount of the credit depends on when the eligible new clean vehicle is placed in service and whether the vehicle meets certain requirements for a full or partial credit. For vehicles placed in service on or after April 18, 2023, the credit amount will depend on the vehicle meeting the critical minerals requirement ($3,750) and/or the battery components requirement ($3,750). A vehicle meeting neither requirement will not be eligible for a credit, a vehicle meeting only one requirement may be eligible for a $3,750 credit, and a vehicle meeting both requirements may be eligible forthe full $7,500 credit. For vehicles placed in service before or on April 17, 2023, the credit is calculated as a $2,500 base amount plus, for a vehicle which draws propulsion energy from a battery with at least 7 kilowatt hours of capacity, $417, plus an additional $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours, up to an additional $5,000 beyond the base amount. In general, the minimum credit amount will be $3,751 ($2,500 + 3 * $417), representing the credit amount for a vehicle with the required minimum of 7 kilowatt hours of battery capacity. Q7. Isthe new clean vehicle creditrefundable or able to be carried forward? (updated October 6, 2023) A7. The new clean vehicle credit may only be claimed to the extent of reported tax due of the taxpayer and cannot be refunded. The new clean vehicle credit cannot be carried forward to the extent it is claimed for personal use on Form 1040, Schedule 3, Additional Credits and Payments. However, the new clean vehicle credit can be carried forward to the extent it is claimed for business use on Form 3800, General Business Credit, as otherwise appropriate. See Topic H FAQ 3 regarding transfer of the clean vehicle credits.

Q8. What does “original use” mean? (updated February 3, 2023)

A8. For purposes of the new clean vehicle credit, “original use” means the first use to which the vehicle is put after it is sold, registered, or titled. A vehicle is not a new clean vehicle if (1) another person (including a dealer) has ever purchased, registered, or titled the clean vehicle and (2) placed it in service for any purpose (including as a dealer demonstrator vehicle). Where a vehicle is acquired for lease to another person, the lessor is the original user. Test drives by potential buyers do not disqualify a vehicle from eligibility for the new clean vehicle credit provided the dealer has not titled the vehicle to itself as a demonstrator vehicle.

Q9. What is a qualified manufacturer? (added December 29, 2022)

A9. A qualified manufacturer is a manufacturer that enters into a written agreement with the IRS to file periodic reports with VINs) and other information for each vehicle they manufacture. The IRS maintains a list of qualified manufacturers that can be found at Clean Vehicle Qualified Manufacturer Requirements.

Q10. Do I have to report the vehicle identification number on my return to claim the new clean vehicles credit? (added December 29, 2022)

A 10. Yes. The VIN of the new clean vehicle is required to be included on Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit, when you file your income tax return. Q11. Can the new clean vehicle credit be split between multiple owners? (added March 31, 2023) A11. No. In certain instances, multiple taxpayers may purchase, place in service, and be titled as owners of a single vehicle. For example, a married couple that files separate tax returns may jointly purchase and take possession of a new clean vehicle that qualifies for the credit and both be titled as owners of the vehicle. However, only one taxpayer can claim the new clean vehicle credit per vehicle placed in service, and the credit may not be allocated or prorated between multiple taxpayers. In the case of married taxpayers filing jointly, either spouse may be identified as the owner claiming the new clean vehicle credit. The name and taxpayer identification number of the owner claiming the credit new clean vehicle credit should be listed on the seller’s report. See Topic B FAQ 9. Accordingly, multiple owners of a new clean vehicle should inform the seller which owner will claim the new clean vehicle credit so that the seller can identify that taxpayer on the seller’s report. The credit would be allowed only on the tax return of the owner listed in the seller’s report.

Q12: What happens if the new clean vehicle sale is cancelled, or the vehicle is returned or resold shortly after purchase? (added October 6, 2023)

A12. If a sale is cancelled before the taxpayer places the vehicle in service, i.e., before the taxpayer takes possession of the vehicle, the taxpayer may not claim the new clean vehicle credit. The vehicle will still be eligible for a new clean vehicle credit upon a subsequent qualifying sale to another taxpayer. In the case of a return made within 30 days of placing the vehicle in service, the purchaser may not claim a clean vehicle credit with respect to the vehicle. Such vehicle, once returned, was already placed in service by a taxpayer, and a new clean vehicle tax credit is not available to a subsequent buyer. In the case of a resale by the purchaser made within 30 days of placing the vehicle in service, the purchaser is treated as having purchased the vehicle with an intent to resell and cannot claim a clean vehicle credit with respect to the vehicle. Such vehicle was already placed in service by a taxpayer, and a new clean vehicle tax credit is not available to a subsequent buyer.

Q13. If I place a vehicle in service in 2024, and it has battery components manufactured by a foreign entity of concern, but it meets the critical mineral applicable percentage requirements for 2024, does my vehicle qualify for the $3,750 portion of the new clean vehicle credit for meeting critical mineral requirements? (added December 26, 2023)

A13. No, a vehicle placed in service after December 31, 2023, with battery components manufactured or assembled by a foreign entity of concern is not eligible for any amount of new clean vehicle credit, as statutorily provided in section 30D(d)(7)(B). If a vehicle has any battery components that were manufactured or assembled by a foreign entity of concern, then the vehicle is no longer considered a new clean vehicle and therefore is not eligible for a partial new clean vehicle credit ($3,750).

Q14. Is a qualified manufacturer required in its written report to make an attestation under penalties of perjury, demonstrating compliance with the foreign entity of concern requirements of section 30D? (added December 26, 2023)

A14. Yes, a qualified manufacturer is required to include in its written report the following attestation: “Under penalties of perjury, I declare that I have examined this certification, including accompanying documents, and to the best of my knowledge and belief, the facts presented in support of this certification are true, correct, and complete.” As such, a qualified manufacturer’s attestation of compliance with the foreign entity of concern requirements should be made to the best of the qualified manufacturer’s knowledge and belief. 

End of IRS Material

Zaher Fallahi, Tax Attorney, CPA, assists taxpayers nationwide with their IRS audits, cryptocurrency tax, foreign gifts, tax preparation, FBAR filing, undisclosed foreign bank accounts, and other international tax matters. Tel.: (310) 719-1040, (714) 546-4272 and (877) 687-7558 toll free nationwide. Websites: zflegal.com and zfcpa.com E-mail taxattorney@zfcpa.com