Topic C — Frequently Asked Questions About When The New Requirements Apply To The New Clean Vehicle Credit

 

Updated FAQs were released to the public in Fact Sheet 2023-04PDF, February 3, 2023. 

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. On the day after the Inflation Reduction Act of 2022 became law (August 16, 2022), did any requirements for taxpayers or vehicles to qualify for the credit for new clean vehicles change? (added December 29, 2022)

A1. Yes, after August 16, 2022, a new clean vehicle must have had its final assembly in North America to be eligible for the credit. There is a transition rule for vehicles purchased before August 16, 2022. Additional changes begin January 1, 2023.

Q2. What additional changes to the credit apply for vehicles placed in service on or after January 1, 2023? (added December 29, 2022)

A2. The most significant changes to the credit for vehicles delivered on or after January 1, 2023, include:

  • The minimum battery capacity is increased to 7 kilowatt hours
  • Vehicles must be made by a qualified manufacturer (see Topic A, FAQ 9 for more detail)
  • MSRP limitations apply, based on the type of vehicle (see Topic B, FAQs 2 and 5 for more detail)
  • Income limits apply to taxpayers (see Topic B, FAQ 1 for more detail)
  • The taxpayer must report the vehicle identification number (VIN) of the vehicle on the taxpayer's income tax return
  • Sellers must provide reports to the taxpayer and the IRS regarding the sale of the vehicle

Q3. Does the "phase-out period" that limited or eliminated the credit for vehicles sold by certain manufacturers that had sold more than 200,000 vehicles still apply for vehicles sold after January 1, 2023? (added December 29, 2022)

A3. No, for vehicles sold on or after January 1, 2023, the prior sales volume limitations no longer apply. The prior sales volume limitations apply to vehicles sold before January 1, 2023.

Q4. Do the new critical mineral and battery components requirements apply? (added December 29, 2022)

A4. Not yet. The critical mineral and battery component requirements under § 30D(e) will apply for vehicles placed in service after proposed guidance on these requirements is issued. The publication of these FAQs is not the issuance of proposed guidance with respect to the critical mineral and battery component requirements under § 30D(e) and does not trigger the applicability of those requirements. The Treasury Department and the IRS will explicitly identify when they have issued proposed guidance with respect to the critical mineral and battery component requirements under § 30D(e). However, vehicles ordered or purchased prior to but placed in service after Treasury and the IRS issue this proposed guidance will be subject to the critical mineral and battery component requirements. This proposed guidance is expected to be issued in March 2023.

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 date the taxpayer takes delivery of the vehicle. For vehicles that are placed in service after they are ordered, a vehicle's eligibility for the new clean vehicle credit may change as certain eligibility criteria vary based on when the taxpayer takes delivery of the vehicle. For more information, see FAQ 7.

Q6: If I order (or purchase) an eligible new clean vehicle on or after August 16, 2022, but don't take delivery until after Treasury issues proposed guidance on the critical mineral and battery component requirements, will my vehicle still be eligible? (added December 29, 2022)

A6: The vehicle may or may not be eligible depending on whether it meets the critical mineral and battery component requirements. New clean vehicles placed in service after Treasury issues proposed guidance on critical mineral and battery component requirements are subject to those requirements even if the vehicle was ordered or purchased before the proposed guidance was issued. A vehicle's eligibility for the new clean vehicle credit is generally based on the criteria that apply as of the date a vehicle is placed in service, meaning the date the taxpayer takes delivery of the vehicle. For vehicles purchased prior to August 16, 2022, see Credits for New Electric Vehicles Purchased in 2022 or Before.

Q7: If I purchase a new clean vehicle in 2022 on or after August 16, 2022, but take delivery of the vehicle in 2023, do the income and MSRP limitations apply? (updated February 3, 2023)

A7: Yes, the income and MSRP limitations apply to any vehicle that is placed in service (delivered to the taxpayer) in 2023.

Q8: If I purchase a new clean vehicle in 2022 that was made by a manufacturer that had already reached the manufacturer sales cap but it is not delivered until 2023, does the manufacturer sales cap still apply? (added December 29, 2022)

A8: Yes, the sales cap of 200,000 vehicles applies to vehicles sold before January 1, 2023. If you purchased a vehicle that is subject to the sales cap, it is not eligible for the credit regardless of when you place it in service.