By Margaret Lulkiewicz, CPA – Supervisor, and Kristy McElroy, CPA – Senior Manager
There is good news for individual consumers and businesses considering the purchase of an electric vehicle. The 2022 Inflation Reduction Act extended certain tax credits through 2032 and expanded eligibility requirements to include electric vehicles produced by manufacturers who did not qualify.
This tax legislation enhanced and expanded the Clean Vehicle Credit, creating three separate credits:
1. New Clean Vehicle Credit
2. Previously-Owned Clean Vehicle Credit
3. Qualified Commercial Clean Vehicle Credit
In addition, beginning in 2024, buyers may be able to utilize certain tax credits at the time of purchase, thereby reducing the price paid to an auto dealership.
Here’s an overview of the three tax credits and credit transfer procedures.
1. New Clean Vehicle Credit – Effective January 1, 2023
The New Clean Vehicle Credit (IRC Section 30D) is available for individuals who purchase a new qualified plug-in electric or fuel cell electric (fully electric) vehicle for their use (not for resale) in the U.S. The maximum credit remains at $7,500 and the following conditions also must be met:
- The buyer’s total annual adjusted gross income (current year or prior year) does not exceed $300,000 for married couples filing jointly, $225,000 for heads of household, or $150,000 for other filers.
- The vehicle retail price does not exceed $80,000 for vans, sport utility vehicles, and pickup trucks, or $55,000 for all other vehicles.
- The vehicle must be produced by a qualified manufacturer (eligibility has been expanded) and meet various standards for weight and battery capacity, including standards related to the location where battery components or critical minerals are sourced.
- Final assembly must be in North America.
2. Previously-Owned Clean Vehicle Credit – Effective January 1, 2023
The Previously-Owned Clean Vehicle Credit (IRC Section 25E) allows a tax credit equal to the lesser of $4,000 or 30% of the sale price for the buyers of a previously owned clean vehicle. The requirements to qualify for this are:
- The buyer’s annual adjusted gross income cannot exceed $150,000 for married couples filing jointly, $125,000 for heads of household, or $75,000 for other filers.
- The purchaser cannot be the original user of the vehicle or a dependent claimed on another’s return.
- The credit can be claimed only once every three years.
- The vehicle must be for your use and used primarily in the U.S.
- The vehicle must have a sale price of $25,000 or less and be a model year at least two years earlier than the year in which purchased.
- The vehicle must be purchased from a dealer (as opposed to an individual) and certain weight limits apply.
3. Qualified Commercial Clean Vehicle Credit – Effective January 1, 2023
The Qualified Commercial Clean Vehicle Credit is for qualifying vehicles purchased by a business on or after January 1, 2023. The amount of the new credit will be the lesser of:
- 15% of the vehicle purchase price for plug-in hybrid electric vehicles;
- 30% of the vehicle purchase price for electric vehicles and fuel cell electric vehicles (not powered by a gas or diesel engine); or
- The “incremental cost” of the vehicle over the cost of a comparable vehicle powered solely by a gas or diesel engine.
Additionally, the vehicle must meet the following requirements:
- The vehicle must be acquired for use or lease by a business and be a depreciable asset;
- The vehicle must be manufactured for use on streets, roads, and highways; and
- The vehicle must be made by a qualified manufacturer, charged by an external electricity source, and have a specific battery capacity.
The credit will be capped at $7,500 for vehicles with a gross vehicle weight rating of less than 14,000 pounds or $40,000 for vehicles over 14,000 pounds.
Transfer Procedure – Effective January 1, 2024
Starting January 1, 2024, buyers may transfer their eligible New Clean Vehicle Credit and their Previously-Owned Clean Vehicle Credit to a qualified dealership to use as a point-of-sale discount. A buyer may be able to transfer more than one of these eligible credits during the year, but there are limitations to consider.
Energy Credits Online Portal
To qualify, dealers and sellers must register with the IRS’s new Energy Credits Online portal. This will allow dealers to complete the entire credit process online and receive advance payments within 72 hours of submission. The online portal will also generate a time-of-sale report that the purchaser will use to report the credit and transfer on his or her tax return.
The IRS strongly encourages dealers to register on the Energy Credits Online portal as soon as possible as it takes 15 days to complete the registration and activation process.
These new credits are welcome news to both individuals and businesses, especially with the ability for consumers to receive certain credits at the time of purchase from an auto dealership. If you have any questions about whether your next vehicle purchase meets the requirements of the credit or if you as the purchaser meet the eligibility thresholds, please reach out to your trusted MichaelSilver advisors at 847.982.0333.
Margaret Lulkiewicz, CPA – Supervisor, works with mid-size enterprises focusing on flow-through taxation within a variety of industries, including auto dealerships, professional services, real estate, and retail. She has provided accounting and tax services for over six years, including compliance and tax planning. Margaret has been with MichaelSilver since 2018. She received her Master’s Degree in Accounting from Dominican University, River Forest. She is a member of the ICPAS.
Kristy McElroy, CPA – Senior Manager, works with high-net-worth individuals and flow-through entities in a variety of industries, including real estate, professional services, and private equity. Kristy has serviced individual and business clients for over 19 years; 6 of which with a Big Four public accounting firm specializing in real estate and private equity. Since joining MichaelSilver in 2019, Kristy has increased her focus on employee benefits and retirement planning. She is a member of the AICPA and ICPAS.