The IRS will be releasing new rules to make it more straightforward how “clean vehicles,” which include EVs, plug-in hybrids, and vehicles powered by hydrogen fuel cells, can be eligible for the Section 30D Clean Vehicle (CV) Credit, formerly known as the Electric Vehicle (EV) Credit. Due to 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 looking for a clean vehicle that qualifies.

Relevant proposed regulations

The sourcing requirements aim to lessen firms’ reliance on suppliers in nations like China. As a result, producers are more interested in many of the proposed regulations than consumers. For instance, they describe calculating the value percentages for essential minerals and battery parts. They also explain how to recognize nations with which the U.S. has free trade agreements.

However, the new regulations also contain several features that give taxpayers access to valuable data. For instance, according to the rules, the manufacturer’s suggested retail price (MSRP) is the total of two prices:

1. The MSRP of the car itself
2. The MSRP of any accessory or piece of optional equipment that is physically attached to the vehicle at the time of delivery to the dealer

The label attached to the windshield or side window of the car contains this information. Therefore, in some circumstances, installing optional equipment may result in losing the CV Credit.

The proposed regulations state that taxpayers may depend on the final assembly point specified on the label attached to the vehicle to satisfy the “final assembly in North America” criterion. Alternatively, they can rely on the manufacturing facility listed in the vehicle’s VIN. North America includes the Americas, Canada, and Mexico.

The proposed regulations cover the treatment of the credit when a vehicle has several owners. According to them, only one taxpayer may claim the credit. There is no allowable proration or allocation. If a married couple files a joint tax return, either spouse may appear on the seller’s report as the owner claiming the credit.

The credit distribution occurs among the shareholders or partners of a partnership that hires a qualifying CV. They can deduct their share on their individual tax filings.

Modified adjusted gross income

The modified adjusted gross income (MAGI) cap is made more apparent in the proposed regulations. If the lesser of:

1. The taxpayer’s MAGI for the year
2. The taxpayer’s MAGI for the year prior exceeds the relevant threshold, the credit is not available for that taxable year

The MAGI limit is satisfied if the MAGI is within the threshold amount in either year, depending on the applicable filing status for that year if a taxpayer’s file status changes during these two years (for instance, from single to married).

Other than individual taxpayers, the MAGI limit does not apply. However, the limit will apply to partners or shareholders who claim their share of the credit if a partnership or an S corporation puts an eligible vehicle in service.

Looking for a clean vehicle?

Taxpayers looking for a clean vehicle to claim the credit don’t need to wait, even though the IRS has promised to provide further information. The U.S. Department of Energy has compiled a list of eligible clean vehicles on its website. The list will regularly update as manufacturers supply details about their vehicles that qualify for the credit. For more information, visit the IRS website. Do not hesitate to contact our RRBB accountants and advisors with any questions about the CV Credit.

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