Wolters Kluwer Tax & Accounting looks at the Provisions of the Inflation Reduction Act on Electric Vehicle Credits
What: The Inflation Reduction Act has made significant changes to the Clean Vehicle Credit and added two new credits for used and commercial clean vehicles. Most of the changes are effective starting in 2023, but a few can have an impact on 2022 tax returns. Some others have later effective dates. Many of the new requirements will make it more difficult to qualify for the credits.
Why: The new credits include domestic content requirements that may take time for manufacturers to achieve. Other limitations include vehicle cost limits, purchaser income limits, and a requirement for Vehicle Identification Numbers on tax returns. Additionally, it does allow immediate benefit by transferring the credit to the dealer for a reduction in purchase price.
- Beginning on August 16, 2022, the vehicle must be assembled in North America
- A transition rule permits certain vehicles to be treated as being placed in service on August 15, 2022, even if placed in service after that date
- A website is available to determine where a particular vehicle was assembled
- An increasing percentage of the critical minerals in the battery must come from the US or a country with a Fair Trade Agreement with the US
- An increasing percentage of the battery components must come from North America
- The maximum $7,500 credit for a clean vehicle remains the same, but is split half for domestic content of critical minerals and half for domestic content of battery components
- The Manufacturers Suggested Retail Price cannot exceed $80,000 for vans, SUVs, and pick-ups or $55,000 for other vehicles
- The taxpayers modified adjusted gross income cannot exceed $150,000 for single filers or $300,000 for joint filers
- The taxpayer must include the Vehicle Identification Number on the tax return
- The previous limitation of 200,000 vehicles per manufacturer expires after 2022
- The taxpayer may make an election to transfer the credit to the dealer after 2023
- The new credit for previously-owned vehicles is limited to $4,000 or 30% of the sale price, also has sale price and income limits, must be purchased from a dealer, and has restrictions on frequency of use and age of vehicle
- The new business credit for commercial clean vehicles is 30% if not gas or diesel, otherwise 15%, and is limited to $7,500 for lighter vehicles, and up to $40,000 for heavier vehicles
- The alternative fuel vehicle refueling property credit has been extended for 2022 with significant new requirements imposed starting in 2023
