IRS guidance coming regarding the IRA’s Clean Vehicle Credit – part one

IRS Guidance on the Clean Vehicle Credit for Electric Cars

The Section 30D Clean Vehicle (CV) Credit, formerly known as the Electric Vehicle (EV) Credit, was extended and enhanced by the Inflation Reduction Act (IRA). The credit now includes “clean vehicles,” such as EVs, plug-in hybrids, and vehicles powered by hydrogen fuel cells. The IRS will release guidance to outline the requirements for applying the CV Credit. Due to the stringent sourcing restrictions that will apply to CVs that purchasers take delivery of on or after April 18, 2023, the proposed regulations effectively limit the number of models already on the market and qualify. The federal government is taking action to assist taxpayers in locating vehicles that qualify.

The previous EV Credit

Since 2008, the Sec. 30D EV Credit has been accessible. Before the IRA, the minimum credit was $2,500, and the maximum credit was $7,500. (Remember that until April 17, 2023, eligible vehicles placed in operation can still qualify for the EV Credit.)

There was also a limit depending on how many eligible automobiles a firm had made. Unfortunately, this cap made certain well-known EVs ineligible for the EV Credit. That includes those produced by Tesla, Toyota, and General Motors.

The extended and expanded CV Credit

The IRA divides the maximum CV Credit, which remains at $7,500, into two portions. It depends on whether suppliers meet new sourcing criteria for essential minerals and battery components. Vehicles that meet only one of the two requirements are eligible for a $3,750 credit.

In more detail, for an “applicable percentage” of the value of the critical minerals within the battery, extraction or production must transpire in the United States or a country with which it has a free trade agreement. Recycling within North America also applies. In addition, manufacturing or assembling a relevant portion of the value of the battery’s component parts must also occur in North America. Starting in 2023, the IRA will gradually raise the applicable percentage for both requirements, with the initial percentages being 40% for critical minerals and 50% for battery components.

The IRA also has price limitations. The manufacturer’s suggested retail price (MSRP) credit is unavailable for vans, pickup trucks, SUVs, or cars with an MSRP of more than $80,000 or $55,000. The final assembly of qualified automobiles must occur in North America.

Your income also constrains the credit. Taxpayers with a modified adjusted gross income (MAGI) of more than:

  • $150,000 for single filers
  • $300,000, for joint filers
  • $225,000, for the head of household filers

Additionally, the credit isn’t available for vehicles that contain any essential minerals (after 2025) or battery components (after 2024) from a “foreign entity of concern.” Although the IRS and the U.S. Department of Treasury have said that future guidance will cover this clause, the IRA doesn’t define this phrase.

IRS guidance on the CV Credit

If the credit is claimed as a personal credit, it is not transferable and cannot be refunded. However, it may be carried forward if claimed as a standard business credit. Suppose a taxpayer uses an eligible vehicle for personal and business purposes, and the percentage of business use during a tax year is less than 50%. In that case, the credit must be allocated as necessary.

For more information, visit the IRS website. Do not hesitate to contact our RRBB accountants and advisors with any questions about the CV Credit, and keep an eye out for part two of this two-part blog series!

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