The Inflation Reduction Act of 2022 (IRA) introduced new “clean” vehicle and energy-efficient property upgrade tax credits. At the time, only minimal and basic information was released with the IRA. In December 2022, the IRS published several Fact Sheets and FAQs to help clarify the rules, eligibility, and limitations of the credits for taxpayers who are interested in purchasing new or used clean vehicles, investing in clean-energy residential property updates, and also for manufacturers and sellers of clean vehicles.
Additional IRS guidance is expected in March 2023.
Up to $7,500 in a federal tax credit is available for a new clean vehicle and up to $4,000 for a used electric vehicle. This has left many taxpayers wanting clarification on exactly how they can be eligible for these new clean-energy credits.
Q: What is the Clean Vehicle credit?
A: The IRA introduced tax credits for taxpayers that purchase eligible for plug-in electric and fuel cell cars and SUVs, used electric vehicles, and commercial electric vehicles. Different requirements depend on if the car was purchased before or after January 1, 2023. The requirements are, so it is best to view the IRS’s webpage on each credit type for the full list of clean vehicle tax credit qualifications:
Q: What are the major qualifications for a “new” clean vehicle?
A: Eligible new clean vehicles must meet the below requirements:
Q: What is the price cap on qualified clean vehicles to be eligible for the tax credit?
A: The credit limitations on the price of the vehicle are based on manufacturer’s suggested retail price, not the actual price you paid for the vehicle. If the MSRP exceeds the limitation for that specific vehicle type, that vehicle is not eligible for the new clean vehicle credit. The manufacturer’s suggested retail price (MSRP) for the new clean vehicle may not exceed the following amounts for the following vehicle types:
Q: What are the tax responsibilities for the taxpayer when claiming the Clean Vehicle Credit?
A: The new clean vehicle credit may only be claimed to the extent of reported tax due of the taxpayer and cannot be refunded or carried forward. The credit is claimed in the tax year that the vehicle is placed in service, meaning the tax year that includes the date the taxpayer takes delivery of the vehicle. The vehicle identification number (VIN) of the new clean vehicle is required to be included on Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit, when you file your income tax return.
Q: Is there a list of vehicles that qualify for the new clean vehicle credit?
A: Yes. The following link contains a list of eligible clean vehicles, including fuel cell vehicles, qualified manufacturers have indicated to the IRS meet the requirements to claim the new clean vehicle credit beginning January 1, 2023: Clean Vehicle Qualified Manufacturer Requirements. This list will be updated to reflect changes in vehicle eligibility.
To check online if a specific vehicle meets the requirements for final assembly location, go to the Department of Energy’s page on Electric Vehicles with Final Assembly in North America and use the VIN Decoder tool under “Specific Assembly Location Based on VIN.”
Q: How do taxpayers know if the IRS classifies the electric vehicle as a truck, van, SUV, or other type of eligible vehicle?
A: The vehicle classifications of vehicles are described in IRS Notice 2023-1. The vehicle classification for this purpose may not match the classification on the fuel economy label or marketing materials describing the vehicle. Vehicle classification information can be found at the Clean Vehicle Qualified Manufacturer Requirements page containing listing of eligible clean vehicles, including fuel cell vehicles, that qualified manufacturers have indicated to the IRS meet the requirements to claim the new clean vehicle credit beginning January 1, 2023.
Q: Who is eligible for the previously-used clean vehicle credit?
A: The taxpayer:
To qualify for the credit, the previously-owned clean vehicle must be purchased from a dealer. A previously-owned clean vehicle is a motor vehicle that meets the following requirements:
The dealer selling the previously-owned clean vehicle must provide a report containing purchaser and vehicle information to the purchasing taxpayer and to the IRS.
Q: What is the income limit for qualifying for the Clean Vehicle Credit?
A:
| Eligibility Income Threshold | |
| New car adjusted gross income (AGI) limit | Used car adjusted gross income (AGI) limit |
| $150,000 for single filers | $75,000 for single filers |
| $225,000 for HOH | $112,500 for HOH |
| $300,000 if married | $150,000 if married |
Q: Is there a federal tax credit for new clean vehicles used for businesses?
A: Yes. Businesses and tax-exempt organizations that buy a qualified commercial clean vehicle may qualify for a clean vehicle tax credit of up to $40,000 under Internal Revenue Code (IRC) 45W. The credit equals the lesser of:
The maximum credit is $7,500 for qualified vehicles with gross vehicle weight ratings (GVWRs) of under 14,000 pounds and $40,000 for all other vehicles.
Read more specific details in the recent guidance released by the IRS below. As always, visit IRS.gov for the most up-to-date information.
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Q: How does the tax credit affect clean vehicle manufacturers and sellers?
A: The Internal Revenue Code asks for qualified manufacturer to enter into a written agreement with the Secretary of the Treasury where the manufacturer agrees to make periodic written reports to the Secretary providing the vehicle identification number and other information related to each vehicle manufactured that is eligible for a clean vehicle credit.
You will not be considered a qualified manufacturer until you have filed your written agreements with the IRS. To register as a qualified manufacturer, send a written agreement, signed by a person with binding authority, to IRS.Clean.Vehicle.Manufacturers@irs.gov.
Q: What do qualified manufacturers have to report to the IRS?
A: For all eligible electric vehicles, the seller must certify the vehicle’s:
For new electric vehicles, the IRS also wants to know:
Qualified manufacturers must file the reports by the fifteenth of each month. You may file reports more frequently.
Both the Energy Efficient Home Improvement Credit and the Residential Clean Energy Property Credit are nonrefundable personal tax credits updated within the IRA of 2022. Following are common questions answered by the IRS in recent guidance.
Q: What home improvements are eligible for the Energy Efficient Home Improvement Credit, and how much is the credit?
A: The following energy efficient home improvements are eligible for the Energy Efficient Home Improvement Credit:
Q: Is there a limit on the amount of the Energy Efficient Home Improvement Credit that can be claimed?
A: Yes. There is a $1,200 aggregate yearly tax credit maximum for all building envelope components, home energy audits, and energy property. Electric or natural gas heat pump water heaters, electric or natural gas heat pumps, and biomass stoves and biomass boilers have a separate aggregate yearly credit limit of $2,000. Thus, the maximum total yearly energy efficient home improvement credit amount may be up to $3,200.
Q: What are the energy efficiency requirements to qualify for the Energy Efficient Home Improvement Credit?
A: Qualifications include:
Q: What residential clean energy expenditures are eligible for the Residential Clean Energy Property Credit, and how much is the credit?
A: The following residential clean energy expenditures are eligible for a Residential Clean Energy Property Credit of 30% of the cost:
Q: Is there a dollar limit on the Residential Clean Energy Property Credit?
A: No, there is no overall dollar limit for the Residential Clean Energy Property Credit. The credit is generally limited to 30% of qualified expenditures made for property placed in service beginning in 2022 through 2032. However, the credit allowed for fuel cell property expenditures is 30% of the expenditures up to a maximum credit of $500 for each half kilowatt of capacity of the qualified fuel cell property. In the case of a residence or dwelling unit that is jointly occupied by two or more individuals, the maximum amount of such fuel cell property expenditures used to calculate the total Residential Clean Energy Property Credit mount for all individuals living in that dwelling unit during a calendar year is limited to $1,667 for each half kilowatt of capacity of qualified fuel cell property.
Q: What are the energy efficiency requirements to qualify for the Residential Clean Energy Property Credit?
A: The following energy efficiency requirements must be met to qualify for the Residential Clean Energy Property Credit:
Q: Can taxpayers claim the credits for expenditures incurred for an existing home? What about a newly constructed home or a second property? How about if the property is used for business purposes?
A: The rules vary by credit.
Q: Is the credit claimed in the year the clean equipment is purchased or when it is installed?
A: A taxpayer may not claim the credits until the year the property is installed.
The guidance from the IRS elaborates in much more detail in the following Fact Sheet:
Download our infographic for a high-level overview at the new Clean Vehicle Tax Credit.
To learn more about the 2023 Clean Energy and Electric Vehicle Tax Credits, contact an Alloy Silverstein advisor today!
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