Credit For New Clean Vehicles
Determining Which Vehicles Qualify and the Amount of the New EV Credit
The new clean vehicle credit that became effective in 2023 can be complicated because both the clean vehicle and the taxpayer must meet certain qualifications for a taxpayer to qualify for the credit.
Vehicles, including all-electric, plug-in hybrid, and fuel cell vehicles that qualify for the credit can be found on the Internet. Search for fueleconomy.gov or go to U.S. Department of Energy website (https://fueleconomy.gov/feg/tax2023.shtml). On that website, the search for qualifying vehicles is divided into two periods for vehicles:
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Placed in service on or after April 18, 2023, and
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Those placed in service after December 31, 2022 and before April 18, 2023. A vehicle is placed in service on the date the taxpayer takes delivery of the vehicle.
The reason is, effective April 18, 2023, a new clean vehicle must meet certain critical mineral and battery component regulations which essentially require a specified percentage of the vehicle's critical mineral and battery components be extracted or processed in the United States or in any country with which the United States has a free trade agreement in effect or recycled in North America. This percentage begins at 50% for 2023 and increases until it reaches 100% in years after 2028, the goal being to eliminate automakers from reliance on certain foreign sources for these materials.
The website provides a search capability illustrated below along with a sample of the output. Note: Since "All" was selected the resulting list was very long and only a very small portion of the results are illustrated.
Other Qualifications Related to New Vehicles
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To qualify, new clean vehicles must be assembled in North America. Only vehicles assembled in North America will appear in the Department of Energy listings. So that is not an additional concern on a practitioner’s part.
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To qualify, a vehicle’s manufacturer’s suggested retail price (MSRP) must be less than $80,000 for vans, pickups. and SUVs, and $55,000 for others. The MSRP limit included with the listings illustrated above is the limit that applies for that vehicle. Don’t confuse that with the actual MSRP which can be lower or higher depending upon the upgrades or accessories included with a vehicle.
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The definition of what constitutes SUV has been an area of concern for whether a vehicle qualifies for the higher $80,000 MSRP. However, that is something you need not be concerned with since the Department of Energy listing shows the MSRP limits or each vehicle not the actual MSRP. Thus a client must get that MSRP information from the new vehicle window label.
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To qualify, a new clean vehicle must also have a minimum battery capacity of 7 kilowatts or greater. Again, if the vehicle is included by the Department of Energy list it will have met that requirement.
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As of December 31, 2022, the 200,000-unit limit per manufacturer that would qualify the credit was lifted, allowing those manufacturers who were previously phased out to again have their vehicles qualify provided the vehicles meet the new requirements.
Taxpayer Qualifications
Congress obviously did not wish for high-income taxpayers to qualify for this new credit, since they imposed income limits. Thus to qualify for the credit, a taxpayer's modified adjusted gross income for the year of purchase OR the previous year must not exceed the amounts shown in the following table.
MAGI means adjusted gross income increased by any amount excluded from gross income under Code Sec. 911 (foreign earned income and housing exclusions), Code Sec. 931 (income from Guam, American Samoa, or the Northern Mariana Islands), and Code Sec. 933 (income from Puerto Rico). (Sec. 30D(f)(10), Act Sec. 13401(f))
Credit Transfer to Dealer
After 2023, a taxpayer on or before the purchase date, can elect to transfer the clean vehicle credit to the dealer from whom the taxpayer is purchasing the vehicle in return for a reduction in purchase price equal to the credit amount. (Sec 30D(g), Act Sec 13401(g))
Making the election cannot limit the use or value of any other dealer or manufacturer incentive to buy the vehicle, nor can the availability or use of the incentive limit the ability of the taxpayer to make the election.
A buyer who has elected to transfer the credit for a new clean vehicle to the dealer and has received a payment from the dealer in return, but whose MAGI exceeds the applicable limit, is required to recapture the amount of the payment on their tax return for the year the vehicle was placed in service. (Sec 30D(g)(10), Act Sec. 13401(g))
Seller-Provided Report
Seller of the vehicle furnishes a report to the buyer and the IRS that includes:
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The name and taxpayer identification number of the buyer;
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The vehicle identification number (VIN) of the vehicle, unless, by U.S. Department of Transportation rules, the vehicle is not assigned a VIN;
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The battery capacity of the vehicle;
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Verification that the original use of the vehicle commences with the taxpayer; and
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The maximum Clean Vehicle Credit allowable to the buyer with respect to the vehicle.
The buyer should be sure to get a copy of the Clean Vehicle Seller Report (IRS Form 15400) before leaving the dealership.
Leased Vehicles
If an electric vehicle (EV) is leased, the tax credit goes to the manufacturer or dealer that's offering the lease, not the person leasing the vehicle.