Topic B — Frequently Asked Questions About Income and Price Limitations 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. Could my income level prevent me from taking the new clean vehicle credit? (added December 29, 2022)

A1. Yes. You may not claim the credit if your modified adjusted gross income (AGI) exceeds certain thresholds. This limitation is based on the lesser of your modified AGI for the year that the new clean vehicle was placed in service or for the preceding year. The relevant modified AGI thresholds are as follows:

  • Married filing jointly or filing as a qualifying surviving spouse or a qualifying widow(er) - $300,000
  • Head of household - $225,000
  • All other taxpayers - $150,000

Your modified AGI is the amount from line 11 of your Form 1040 plus:

  • Any amount on line 45 or line 50 of Form 2555, Foreign Earned Income.
  • Any amount excluded from gross income because it was received from sources in Puerto Rico or American Samoa.

Q2. Are there any price limitations on new clean vehicles eligible for the credit? (added December 29, 2022)

A2. Yes. The manufacturer's suggested retail price (MSRP) for the new clean vehicle may not exceed the following amounts for the following vehicle types:

  • Vans - $80,000
  • Sport Utility Vehicles - $80,000
  • Pickup Trucks - $80,000
  • Other - $55,000

If the MSRP exceeds the limitation for that specific vehicle type, that vehicle is not eligible for the new clean vehicle credit.

The MSRP for this purpose is the base retail price suggested by the manufacturer, plus the retail price suggested by the manufacturer for each accessory or item of optional equipment physically attached to the vehicle at the time of delivery to the dealer. It does not include destination charges or optional items added by the dealer, or taxes and fees.

The Clean Vehicle Qualified Manufacturer Requirements contain a list 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.

Q3. How will I know what the manufacturer's suggested retail price (MSRP) is for a vehicle? (added December 29, 2022)

A3. The MSRP will be on the vehicle information label attached to each vehicle on a dealer's premises. The MSRP for this purpose is the base retail price suggested by the manufacturer, plus the retail price suggested by the manufacturer for each accessory or item of optional equipment physically attached to the vehicle at the time of delivery to the dealer. It does not include destination charges or optional items added by the dealer, or taxes and fees.

Q4. Would I still qualify for the new clean vehicle credit if the purchase price, including sales tax, fees, negative equity on a trade, etc., exceeds the manufacturer's suggested retail price threshold? (added December 29, 2022)

A4. 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. See FAQ 2 for how to determine the manufacturer's suggested retail price.

Q5. If the manufacturer/dealer offers incentives on the purchase, and the total purchase price drops below the manufacturer's suggested retail price limitation, will the vehicle be eligible for the new clean vehicles credit? (added December 29, 2022)

A5. The credit limitations on the price of the vehicle are based on manufacturer's suggested retail price (MSRP), not the actual price you paid for the vehicle. See FAQ 2 for how to determine MSRP.

Q6. How do I know if my vehicle is a truck, van, SUV, or other type of vehicle for purposes of determining the applicable manufacturer's suggested retail price for a vehicle? (added December 29, 2022)

A6. The vehicle classifications of vehicles are described in IRS Notice 2023-1PDF. 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 in the Clean Vehicle Qualified Manufacturer Requirements, which contain a listing of eligible clean vehicles, including fuel cell vehicles, that qualified manufacturers have indicated to the IRS meet the requirements to claim the new vehicle credit beginning January 1, 2023.

Q7. What information does a seller have to provide to a taxpayer purchasing a new clean vehicle to allow the taxpayer to claim the new clean vehicle credit? (added December 29, 2022)

A7. A seller must provide the following information on a report to the taxpayer and to the IRS:

  • Name and taxpayer identification number of the seller
  • Name and taxpayer identification number of the taxpayer
  • Vehicle identification number of the new clean vehicle
  • Battery capacity of the new clean vehicle
  • Verification that the taxpayer is the original user of the new clean vehicle
  • The date of the sale and the sales price of the vehicle
  • Maximum credit allowable for the new clean vehicle being sold
  • For sales after December 31, 2023, the amount of any transfer credit applied to purchase
  • A declaration under penalties of perjury from the seller

For further details see Revenue Procedure 2022-42.

Q8. When must the seller provide the report to the taxpayer? (added December 29, 2022)

A8. The seller must provide the report to the taxpayer not later than the date the vehicle is purchased. For further details see Revenue Procedure 2022-42.

Q9. How will a seller provide these reports to the IRS? (added December 29, 2022)

A9. For vehicle sales occurring in calendar year 2023 and later, sellers must file reports within 15 days after the end of the calendar year, in a format and method that the IRS provides. For further details see Revenue Procedure 2022-42.