Topic A — Frequently Asked Questions About the Eligibility Rules for the New Clean Vehicle Credit

 

These FAQs were released to the public in Fact Sheet 2022-42PDF, December 29, 2022.

The Inflation Reduction Act of 2022 (IRA) makes several changes to the tax credit provided in § 30D of the Internal Revenue Code (Code) for qualified plug-in electric drive motor vehicles, including adding fuel cell vehicles to the § 30D tax credit. The IRA also added a new credit for previously-owned clean vehicles under § 25E of the Code.

These FAQs provide detail on how the IRA revises the credit available under § 30D (new clean vehicle credit) for individuals and businesses, and information on the credit available under § 25E (previously-owned clean vehicle credit) for individuals, and the new credit for qualified commercial clean vehicles under § 45W of the Code.

Q1. What is a new clean vehicle for purposes of the new clean vehicle credit? (added December 29, 2022)

A1. For purposes of the new clean vehicle credit, a new clean vehicle is a clean vehicle placed in service on or after January 1, 2023, that is acquired by a taxpayer for original use. In addition, to qualify for the credit, the vehicle:

  • Cannot be acquired for resale purposes;
  • Must be manufactured by a qualified manufacturer;
  • Must meet the definition of a motor vehicle under Title II of the Clean Air Act (that is, any vehicle manufactured primarily for use on public streets, roads, and highways. It must also have at least four wheels);
  • Must have a gross vehicle weight rating of less than 14,000 pounds;
  • Must be powered to a significant extent by an electric motor with a battery capacity of 7 kilowatt hours or more and must be capable of being recharged from an external source of electricity; and
  • Must have final assembly in North America.

Moreover, for a taxpayer to claim the credit, the seller of a new clean vehicle must provide a report containing taxpayer and vehicle information to the taxpayer and to the IRS. See Topic B FAQs 7-9 for additional detail.

Fuel cell vehicles are also new clean vehicles if (1) the original use begins with the taxpayer, (2) the final assembly is in North America, and (3) the seller of the vehicle provides a report to the taxpayer and the IRS.

Q2. Is there a list of vehicles that qualify for the new clean vehicle credit? (added December 29, 2022)

A2. 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. Verification of the manufacturer's suggested retail price and final assembly is required, see Topic B FAQs 2 and 3.

Q3. How will I know if the final assembly of a new clean vehicle is in North America? (added December 29, 2022)

A3. The final assembly point will be listed on the vehicle information label attached to each vehicle on a dealer's premises. In addition, you can search the vehicle identification number (VIN) of the vehicle on the Department of Energy's Alternative Fuels Data Center website.

In general, North America includes the United States (defined, for this purpose to mean the 50 states, the District of Columbia, and Puerto Rico), Canada, and Mexico for purposes of determining the location of final assembly.

The VIN Decoder website for the National Highway Traffic Safety Administration (NHTSA) also provides final assembly location information. The website, including instructions, can be found at VIN Decoder.

Q4. How will I know what the vehicle identification number (VIN) is for a new clean vehicle? (added December 29, 2022)

A4. The vehicle identification number is a 17-character number that uniquely identifies a vehicle. It is permanently attached to a vehicle in several locations, appearing on the dashboard for most passenger vehicles and on the label located on the driver's door frame. The VIN is also located on the window sticker of new vehicles and often appears on the vehicle listing on dealers' websites.

Q5. If I order a new clean vehicle in one year and don't receive it until a subsequent year, when do I claim the credit? (added December 29, 2022)

A5. The new clean vehicle 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.

Q6. What is the amount of the new clean vehicle credit? (added December 29, 2022)

A6. Beginning January 1, 2023, eligible vehicles may qualify for a tax credit of up to $7,500.

Until the day after the Treasury Department and the IRS issue proposed guidance on the critical mineral and battery component requirements of the new clean vehicle credit under § 30D, the credit is calculated as a $2,500 base amount plus, for a vehicle which draws propulsion energy from a battery with at least 5 kilowatt hours of capacity, $417, plus an additional $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours, up to an additional $5,000 beyond the base amount. In general, the minimum credit amount will be $3,751 ($2,500 + 3 * $417), representing the credit amount for a vehicle with the minimum of 7 kilowatt hours of battery capacity.

Once the Treasury Department and the IRS issue the proposed critical mineral and battery component guidance later in 2023, additional requirements will change the amount of the credit (that is, an eligible vehicle may qualify for more or less credit than before). The credit amount will depend on the vehicle meeting the critical minerals requirement ($3,750) and/or the battery components requirement ($3,750). A vehicle meeting neither requirement will not receive a credit, a vehicle meeting only one requirement may be eligible for a $3,750 credit, and a vehicle meeting both requirements may be eligible for the full $7,500 credit. The Treasury Department and the IRS anticipate issuing the proposed guidance in March.

Q7. Is the new clean vehicle credit refundable or able to be carried forward? (added December 29, 2022)

A7. No. 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.

Q8. What does "original use" mean? (added December 29, 2022)

A8. For purposes of the new clean vehicle credit, "original use" means that the vehicle has never been used by any taxpayer for any purpose. A vehicle is not a new clean vehicle if another person has ever purchased or leased the clean vehicle and placed it in service for any purpose. Where a vehicle is acquired for lease to another person, the lessor is the original user.

Q9. What is a qualified manufacturer? (added December 29, 2022)

A9. A qualified manufacturer is a manufacturer that enters into a written agreement with the IRS to file periodic reports with vehicle identification numbers (VINs) and other information for each vehicle they manufacture. The IRS maintains a list of qualified manufacturers that can be found at Clean Vehicle Qualified Manufacturer Requirements.

Q 10. Do I have to report the vehicle identification number on my return to claim the new clean vehicles credit? (added December 29, 2022)

A 10. Yes. The vehicle identification number 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.