IRS Issues New Guidance on Electric Vehicle Tax Credits

IRS Issues New Guidance on Electric Vehicle Tax Credits

The Internal Revenue Service (IRS) recently issued final regulations (T.D. 9995) concerning clean vehicle credits. These regulations cover both new and previously owned clean vehicles. The most notable change allows to now transfer credits for vehicles to registered dealers at the point of sale, rather than waiting until they file their tax returns. This will streamline the process and will allow taxpayers to receive their tax credit faster. Additionally, the final regulations allow taxpayers to receive an advance payment of the transferred credits.

Under the Inflation Reduction Act of 2022 (P.L. 116-179), Section 30D grants credits for new clean vehicles, with a maximum credit of $7,500. This credit is split into two components: $3,750 for meeting critical minerals requirements and another $3,750 for meeting battery components requirements. Eligible vehicles must also satisfy other criteria, including a limit on the manufacturer?s suggested retail price.

For previously owned clean vehicles, the credit falls under Section 25E. Buyers can claim a credit of $4,000 if the vehicle?s sale price is $25,000 or less. Income limitations apply to qualify for this credit.

The regulations also address Foreign Entity of Concern (FEOC) Compliance. Manufacturers of new clean vehicles must ensure that battery components and critical minerals comply with FEOC standards. The final regulations define terms, impose due diligence requirements, and outline compliance determination methods. Additionally, a new test?the traced qualifying value add test?evaluates mineral content in the supply chain.

To ensure accuracy, the IRS, with assistance from the Energy Department, will review materials sourcing documentation. Importantly, taxpayers won't be penalized for mistakes made by manufacturers regarding vehicle eligibility information.