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New & Used Clean Vehicle Tax Credit Requirements
UPDATE: On March 31, 2023, the IRS released updated guidance which will change the new electric vehicle (EV) tax credits that we previously reported on below. These proposed changes will be effective April 18, 2023.
The updated guidance will have new critical mineral and battery component content requirements that EVs must meet to qualify for Section 30D tax credits. In summary, dealers should make these considerations:
- Effective April 18, 2023, the number of EV make/models that are potentially eligible for a Section 30D credit will likely be greatly reduced.
- For EVs that may qualify for a Section 30D credit under the proposed guidance, there will be only two possible credit amounts: $3,750 or $7,500. Until April 18, potential Section 30D credits will continue to vary but will typically be for $7,500.
- After April 17, 2023, dealers should be cautious about providing customers with the seller reporting forms. They should first consult with the OEM on the impact of the guidance before representing the potential value of the Section 30D tax credit on a given vehicle.
- Since the IRS has indicated that it will make frequent updates to the make/model credit eligibility, dealers are encouraged to stay apprised of resources found at fueleconomy.gov.
For more information on the Section 30D tax credits, please contact Travis Horton at 423.756.7771.
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Beginning January 1, 2023, if you buy a qualified new or used electric vehicle (EV) from a licensed dealer, you may be eligible for a clean vehicle tax credit. Below is information dealers may find beneficial when it comes to this tax credit.
New Clean Vehicle Requirements
Vehicle
- Propelled by battery with minimum capacity of 7 kwh
- Battery capable of being recharged from external source of electricity
- Placed in service on or after January 1, 2023 with final assembly in North America (1)
- Gross vehicle weight rating < 14,000 lbs.
- Dealer must provide report to purchaser and IRS
- Manufactured by a qualified manufacturer for use on public streets, roads and highways and with at least four wheels intact
- Cannot exceed MSRP limits (2)
-Van/SUV/Truck - $80,000
-Other - $55,000
- Critical mineral/battery component requirements under further review by United States Treasury Department
Buyer
- Must report VIN on tax return for taxable year in which the vehicle was placed in service
- Modified Adjusted Gross Income of taxpayer for taxable year or preceding year, whichever is less, does not exceed: (4)
-Married filing jointly or as qualifying surviving spouse or qualifying widow(er) - $300,000
-Head of household - $225,000
-All other taxpayers - $150,000
- Original use commences with taxpayer, and vehicle is acquired for use or lease in the U.S. and not for resale
Credit Allowance Per New Vehicle
Base Amount: $2,500
Battery Capacity: $5,000 (3)
Maximum Credit: $7,500
Used Clean Vehicle Requirements
Vehicle
- Model year of the vehicle is minimum two years earlier than calendar year in which taxpayer acquires vehicle
- Manufactured by qualified manufacturer for use on public streets, roads and highways and with at least four wheels intact
- Gross vehicle weight rating < 14,000 lbs.
- Propelled by battery with minimum capacity of 7 kwh
- Purchase of used vehicle is from a dealer
- Battery capable of recharge from external electricity source
- Purchasing taxpayer must be the first qualified buyer, other than vehicle's original user, to claim the credit since enactment of Inflation Reduction Act (August 16, 2022)
- Dealer must provide report to purchaser and IRS
-Vehicle purchase price must be $25,000 or less
- Critical mineral/battery component requirements under further review by United States Treasury Department
Buyer
- Must report VIN on tax return for taxable year in which the vehicle was placed in service
- Modified Adjusted Gross Income of taxpayer for taxable year or preceding year, whichever is less, does not exceed: (5)
-Married filing jointly or as qualifying surviving spouse or qualifying widow(er) - $150,000
-Head of household - $112,500
-All other taxpayers - $75,000
- A Qualified Buyer is defined as:
-Taxpayer who has not been allowed a previously-owned clean vehicle credit in preceding three year period from date of the sale of such vehicle
-Purchase of vehicle must be for use and not for resale
-Purchaser must be Individual and cannot be claimed as a dependent on another taxpayer's tax return
Credit Allowance Per New Vehicle
Lesser of $4,000 or 30% of sales price.
What Dealers Need to Consider Related to Reporting EV Sales
For the vehicle to be eligible for the credit, the seller must provide a report to the IRS. NADA has prepared a sample form that complies with the information requested by the IRS with the recommended declarations and attestations (a copy of this form is linked below). The required information includes:
- Seller/Dealer name and taxpayer ID number
- Buyer's name and taxpayer ID number
- Maximum credit allowable under IRC 30D for new vehicles or IRC 25E for previously owned vehicles
- Vehicle identification number (VIN), unless the vehicle is not assigned one
- Battery capacity
- Date of sale
- Sale price
- For new vehicles, verification that the buyer is the original user
- For used vehicles, the original use did not commence with the taxpayer-purchaser
The report should be completed during the deal. Also, the report will need to be signed by a person currently authorized to bind the dealership in these matters. We recommend that you follow your procedures related to signing finance contracts. Finally, a copy should be provided to the customer.
We recommend dealers place a copy in the deal and maintain a consolidated file with copies of all reports for the year in the office. The dealership will need to send the compiled information to the IRS by January 15th of each year. The specific details of the IRS information collection process have not been disclosed at this time.
We recommend having your controller add the form to their billing checklist to verify it in all EV deals. Your controllers should also place the reporting deadline on their year-end checklist and a reminder on their calendar.
As of the date of the creation of this document, NADA members may access the sample forms at the following links below. Please note that the Section 30D form has not been updated to include the sales price as requested. We recommend you modify the form to include this information.
Checklist to Determine if an EV Sale Needs to be Reported to the IRS
Download the checklist here.
1 - North America includes 50 states, District of Columbia, Puerto Rico, Mexico and Canada
2 - MSRP limit amount does not include taxes, fees, or optional items added by the dealer
3 - Base credit of $417 plus $417 per kwh of capacity in excess of 5 khw w/ cap of $5,000
4 & 5 - For informational purposes only. Customer will need to consult their tax advisor and evaluate their qualifications
Data Sources/Links
List of Qualified New & Used Manufacturers & Models:
Final Assembly Verification:
DIRS Guidance:
Section 30D of IRC: New Clean Vehicle Credit
Section 25E of IRC: Previously-owned Clean Vehicle Credit
IRS Guidance: Clean Vehicle Credit Requirements
Disclaimer
This document and related materials are provided for general information purposes only and do not constitute legal or professional advice. Additional guidance or variances in interpretation may impact the information provided. No user should act on the basis of any material contained in this document without obtaining proper legal or other professional advice specific to their situation.