Clean Vehicle Tax Credits: Important Updates for Dealers and Sellers
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The IRS has announced additional guidelines on the clean vehicle tax credits. Before jumping into the changes, let’s review the program highlights for both new and used vehicles.
Section 30D
Applies to any new battery electric, plug-in hybrid, and fuel cell vehicle less than 14,000 pounds and powered by a motor with a capacity of 7 kilowatt hours or more, assembled in North America.
Eligible vehicles qualify for a tax credit of up to $7,500. 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 both requirements may be eligible for the full $7,500 credit.
The manufacturer must be qualified. The IRS maintains a list of qualified manufacturers that can be found at Clean Vehicle Qualified Manufacturer Requirements.
The new vehicle must be acquired for use or lease and not for resale.
Customers will have to meet certain income requirements to qualify for the credit. The customer/taxpayer will need to evaluate their qualification. They should consult their tax advisor. In summary, for informational purposes only, the customer's modified adjusted gross income (AGI) may not exceed:
-$300,000 for married couples, filing jointly.
-$225,000 for heads of households.
-$150,000 for all other filers.
Price limits on vehicles based on MSRP that qualify:
- $80,000 for vans, sport utility vehicles, and pickup trucks.
- $55,000 for other vehicles.
Section 25E
Applies to previously owned clean vehicles.
The manufacturer must be qualified, similar to the process for 30D
“Previously owned clean vehicles” refers to vehicles with the following requirements:
- The model year of the vehicle is at least two years earlier than the calendar year in which a taxpayer acquires the vehicle.
- The purchasing taxpayer is not the original user of the vehicle.
- It is acquired for a sales price of $25,000 or less.
- It has a gross weight of less than 14,000 pounds.
- It is propelled by an electric motor which draws its power from a battery that has a capacity of not less than 7 kWh and is capable of being recharged.
- To see if a vehicle is eligible, see the list at: https://fueleconomy.gov/feg/tax2023.shtml
The amount of the credit is the lesser of $4,000 or an amount equal to 30% percent of the sales price of the vehicle.
Limits:
The taxpayer has not been allowed another previously owned clean vehicle credit with respect to a vehicle purchased within the three-year period prior to the date the current previously owned clean vehicle is purchased.
The purchasing taxpayer is the first qualified buyer of the vehicle since August 16, 2022, other than its original user.
Customers will have to meet certain income requirements to qualify for the credit. The customer/taxpayer will need to evaluate their qualification. They should consult their tax advisor. In summary, for informational purposes only, the customer's modified adjusted gross income (AGI) may not exceed:
- $150,000 for joint filers.
- $112,500 for heads of households.
- $75,000 for all other filers.
Only individuals are eligible for the previously owned clean vehicle credit; businesses do not qualify.
The vehicle must be purchased from a dealer.
In July 2023, the IRS issued form 15400 Clean Vehicle Sellers Report to collect and provide information regarding new or previously owned clean vehicles tax credits. The form should currently be used to provide information to both the IRS and the buyer and is located at: https://www.irs.gov/pub/irs-pdf/f15400.pdf. Dealers should maintain a copy of the report and provide a copy to the customer/taxpayer. The information captured on the new form must be reported to the IRS for all 2023 transactions by January 15, 2024. However, the specific requirements or format for this reporting requirement have not yet been released as of the date of this article. The IRS has revised the reporting process for 2024 to include a time-of-sale reporting requirement which will be discussed further below.
New for 2024
As of October 6, 2023, the IRS has announced additional guidelines related to clean vehicle tax credits effective for vehicles placed in service on January 1, 2024, or later. Here is what you need to know.
Transfer Election
The buyer purchasing a new or previously owned clean vehicle will be allowed to apply the tax credit at the point of sale to reduce the purchase price by the amount of the credit. The transfer must be through a registered dealer, which is explained below. The credit can be exchanged for cash or used as a partial payment or down payment for purchasing the applicable vehicle, depending on how the deal is structured. The program benefits the taxpayer by giving them an immediate financial benefit at the time of sale, rather than waiting to file a tax return and claiming the credit. However, taxpayers may claim the tax credit on their return instead of transferring it to a qualified seller.
Payment
The IRS will issue payment to the selling dealer for tax credits applied at the time of sale via ACH direct deposit. The IRS refers to this payment as an “advance payment." The payment will be made once the dealer reports the sale and requests the advance payment through the process described below. The IRS plans to provide real-time online confirmation noting the acceptance of the requests. Such payments are treated as repaid by the buyer to the dealer as part of the vehicle's purchase price and, therefore, are included in the total amount received from the sale transaction.
Registration
Buyers can only claim credits if the seller has registered with the IRS. The initial registration must be completed through the IRS Energy Credits Online Portal and must be completed by an individual authorized to bind the dealer or seller legally. Dealers and sellers can authorize more than one employee to make representations on their behalf through the IRS Energy Credits Online Portal starting in December 2023. We recommend registering early to prevent possible delays closer to year-end. As of November 1, 2023, the IRS opened the portal to register for time-of-sale reporting and advance payments. The following link takes you to the site:
Requirement
In order for the seller to submit the new time-of-sale reports for clean vehicle credits or register to receive advance payments, a dealer must be licensed by a state. Non-licensed sellers must still be registered through the IRS Energy Credits Online Portal to submit time-of-sale reports but will not qualify to utilize the previously owned clean vehicle credits or receive the advance payments.
Submission
Buyers can only claim credits if the seller successfully submits a time-of-sale report through the IRS EnergyCredits Online Portal. This submission is made through the IRS Energy Credits Online Portal at the time of sale, but no later than three calendar days, and the seller must provide a copy of the successfully submitted time-of-sale report to the buyer along with confirmation of the submission through the IRS Energy Credits Online Portal within three calendar days of the submission. This is critical, as the buyer cannot claim the credit under the program nor can the seller claim an advance payment if the report is not submitted or the IRS rejects it. The IRS plans to notify the dealer in real time if the information is accepted or rejected for units placed in service on or after January 1, 2024. We recommend obtaining the confirmation before vehicle delivery once this program is applicable.
Dealer Disclosures
The registered dealer must provide the following items to the buyer in writing at the time of sale unless otherwise noted:
- The MSRP of the new clean vehicle or the sale price of the previously owned clean vehicle.
- The maximum amount of the credit allowable and any other incentive available for the purchase of such vehicle.
- The amount provided by the dealer to the buyer as a condition of the buyer making the transfer election.
- The modified AGI limitations provided in section30D(f)(10) (in the case of a new clean vehicle)or section 25E(b)(2) (in the case of a previously owned clean vehicle), as applicable. The current requirements are summarized in the program highlights at the beginning of the article.
- For previously owned clean vehicles, the dealer must provide certification that:
- The model year of the vehicle is at least two years prior to the calendar year of sale, and
- That the transfer is the first transfer of the vehicle since August 16, 2022, to a person other than the person with whom the original use of such vehicle commenced.
- A copy of the time-of-sale report submitted for the vehicle and confirmation of the successful submission of the report throughIRS Energy Credits Online Portal.
The IRS plans to publish sample disclosures before 2024.
Information Collected
The registered dealer must collect the following information from the buyer at the time of the sale similar to the information gathered in the IRS form 15400 previously discussed.
- Date of the transfer election
- Your taxpayer identification number
- A photocopy of your valid, government-issued photo identification document
- An attestation that the buyer's modified AGI meets the requirements
- For new clean vehicles, an attestation that the vehicle will be used predominantly for personal use
- For previously owned clean vehicles, an attestation (or declaration) that you are a qualified buyer
- An attestation from the buyer that:
- The buyer will file an income tax return for the taxable year the vehicle is placed in service on or before the due date of the return (including extensions), reporting the clean vehicle credit, as applicable, including the VIN, and your election to transfer the credit to the dealer and repaying any credit amounts subject to recapture (if applicable).
- The buyer is making this election prior to placing the vehicle in service, and this is the first or second transfer election made during the taxable year.
- In the event the buyer exceeds the applicable modified AGI limitations, the buyer will repay the amount received as an addition to tax for the tax year the vehicle was placed in service.
- The buyer has voluntarily elected to transfer the credit.
Qualifications and Returns
If a buyer's modified AGI exceeds the limit, the buyer will be required to repay the amount received for transferring the tax credit in addition to their tax liability for the tax year. Dealers are NOT required to repay the advance payment if the purchaser exceeds the income limits. In addition, dealers are NOT required to verify a purchaser's income for a credit but must disclose the applicable income limits as previously described.
The amount of the credit that the buyer transfers to the eligible entity may exceed the taxpayer's regular tax liability for the taxable year in which the sale occurs, and the excess, if any, is NOT subject to recapture from the dealer or the buyer.
If a buyer returns a vehicle within 30 days of the time of sale and the dealer fails to report such return through the IRS Energy Credits Online Portal, the dealer will be required to repay the advance payment.
Other Limits
Buyers can only make two elections to transfer credits each tax period. In addition, buyers are limited to only one previously owned vehicle credit per tax period. The entire credit must be transferred, as partial credits are not allowed. The program runs through 2032.
This continues to be a developing topic. The IRS and Treasury Department continue to provide additional information. Please stay tuned for updated developments.