Topic D — Frequently asked questions about eligibility rules for the Previously-Owned Clean Vehicles Credit

Updated FAQs were released to the public in Fact Sheet 2024-26 PDF, July 2024.

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 section 30D tax credit. The IRA also added a new credit for previously owned clean vehicles under section 25E of the Code.

These FAQs provide detail on how the IRA revises the credit available under section 30D (New Clean Vehicle Credit) for individuals and businesses, and information on the credit available under section 25E (Previously Owned Clean Vehicle Credit) for individuals, and the new credit for qualified commercial clean vehicles under section 45W of the Code.

Q1. What is the Previously Owned Clean Vehicle Credit under section 25E? (updated Oct. 6, 2023)

A1. The Previously Owned Clean Vehicle Credit is a credit of up to $4,000 for the purchase of an eligible previously owned clean vehicle with a sale price of $25,000 or less that is placed in service during a tax year by a qualified buyer. To claim the credit, a qualified buyer must meet certain income requirements (see Topic E, FAQ 1), and it must be the vehicle’s first qualified sale since Aug. 16, 2022, other than to the original owner.

Q2. What is a previously owned clean vehicle for the purpose of the Previously Owned Clean Vehicle Credit? (updated Oct. 6, 2023)

A2. A previously owned clean vehicle is a motor vehicle that meets the following requirements:

• The model year of the vehicle is at least two years earlier than the calendar year in which a taxpayer acquires the vehicle.
• The purchasing taxpayer is not the original user of the vehicle.
• The vehicle was acquired for a sale price of $25,000 (see Topic E, FAQ 2) or less from a dealer and the purchasing taxpayer is the first qualified buyer (see FAQ 4) to claim the credit since Aug. 16, 2022, other than its original user.
• Such motor vehicle is a:
  • Qualified fuel cell motor vehicle with a gross vehicle weight rating of less than 14,000 pounds, or
  • A vehicle made by a qualified manufacturer (see Topic A, FAQ 9) that meets the definition of a motor vehicle under Title II of the Clean Air Act, has a gross vehicle weight rating of less than 14,000 pounds, is powered to a significant extent by an electric motor with a battery capacity of seven kilowatt hours or more, and is capable of being recharged from an external source of electricity.

The dealer selling the previously owned clean vehicle must provide a seller report containing buyer and vehicle information to the purchasing taxpayer and to the IRS.

Q3. How will I know if a previously owned clean vehicle may be eligible for a credit? (updated July 26, 2024)

A3. Please see the following Used Clean Vehicle Credit page regarding vehicle eligibility. In addition, qualified buyers will want to ensure their income does not exceed certain thresholds (see Topic E, FAQ 1) and check the sales history of the vehicle to ensure that their purchase will qualify as the first transfer of the previously-owned vehicle after Aug. 16, 2022 (see FAQ 4 and FAQ 7) other than to the person who was the original user of the vehicle.

Visit FuelEconomy.gov/usedtaxcredit for a list of manufacturers and models that are eligible for the Used Clean Vehicle Credit.

At the time of sale, buyers are advised to obtain a copy of the seller report submitted by the dealer to the IRS containing the vehicle identification number of the vehicle being purchased, ensure there are no errors, and then confirm with the dealer that the dealer’s submission of the report through IRS Energy Credits Online was successful. IRS Energy Credits Online provides real-time confirmation of a vehicle’s eligibility using VINs provided by qualified manufacturers (see Topic I, FAQ 29). Buyers are also advised to obtain a copy of the vehicle history report as of the date of sale for their records.

Q4. Who is eligible to claim the Previously Owned Clean Vehicle Credit? (updated Feb. 3, 2023)

A4. Only individuals who meet the following requirements can claim the Previously Owned Clean Vehicle Credit:

• The taxpayer purchases the vehicle for use and not for resale.
• The taxpayer cannot be claimed as a dependent on another taxpayer’s tax return.
• The taxpayer has not been allowed another Previously Owned Clean Vehicle Credit in the three-year period prior to the date the previously owned clean vehicle is purchased.
• The taxpayer’s income level cannot exceed certain thresholds (see Topic E, FAQ 1)

Q5. What is the amount of the Previously Owned Clean Vehicle Credit? (added Dec. 29, 2022)

A5. The Previously Owned Clean Vehicle Credit is the lesser of $4,000 or an amount equal to thirty (30) percent of the sales price of the vehicle purchased.

Q6. What is “original use” of a previously owned clean vehicle? (added Dec. 29, 2022)

A6. Original use occurs the first time an individual or business places a vehicle in service for personal or business purposes.

Q7. What is the first transfer rule for purposes of being a qualified sale of a previously owned clean vehicle? (updated Oct. 6, 2023)

A7. It is the first transfer of the vehicle after Aug. 16, 2022, of the Previously Owned Clean Vehicle Credit other than to the person who was the original user of the vehicle. See FAQ 4 for information on individuals eligible to claim the Previously Owned Clean Vehicle Credit. The original user’s sale of the vehicle to a dealer or a subsequent dealer does not negate the vehicle’s eligibility for the credit under the first transfer rule. As described in Topic J, FAQ 2, sellers will review vehicle history reports when making attestations regarding the vehicle’s eligibility and submitting seller reports. Please see FAQ 12 for information about eligibility of returned previously owned clean vehicles.

Q8. Can a business entity (e.g., a corporation or a partnership) purchase a previously owned clean vehicle and claim the Previously Owned Clean Vehicle Credit? (added Dec. 29, 2022)

A8. No. Only individuals are eligible for the Previously Owned Clean Vehicle Credit.

Q9. Can I buy a previously owned clean vehicle from a person who isn’t a dealer and still qualify for the Previously Owned Clean Vehicle Credit? (updated Oct. 6, 2023)

A9. No. To qualify for the credit, the previously owned clean vehicle must be purchased from a dealer. A dealer is a person licensed by a state, the District of Columbia, an Indian tribal government, or any Alaska Native Corporation to engage in the sale of vehicles. A dealer may make sales at sites outside of the jurisdiction in which its licensed.

Q10. If I order or purchase a previously owned clean vehicle in 2022 but take delivery of the vehicle in 2023, can the vehicle qualify for the Previously Owned Clean Vehicle Credit? (added Dec. 29, 2022)

A10. Yes, if all other eligibility criteria are met.

Q11. If I purchase a previously owned clean vehicle for which a New Clean Vehicle Credit was claimed by the original buyer, may I claim a Previously Owned Clean Vehicle Credit for it? (added Oct. 6, 2023)

A11. Yes, if all other eligibility criteria for the previously owned clean vehicle are met.

Q12. What happens if a sale is canceled or the vehicle is returned or resold shortly after purchase? (updated July 26, 2024)

A12. If a sale is cancelled before the taxpayer places the vehicle in service (that is, before the taxpayer takes possession of the vehicle), the buyer may not claim the Previously Owned Clean Vehicle Credit. If the time-of-sale report for the cancelled sale was submitted to the IRS through IRS Energy Credits Online, the time-of-sale report should be voided within the 48-hour void period. The vehicle may still be eligible for a previously owned clean vehicle credit upon a subsequent qualifying sale to another taxpayer.

In the case of a return of a previously-owned clean vehicle made within 30 days of placing the vehicle in service, the buyer making the return may not claim the Previously-Owned Clean Vehicle Credit. Because such vehicle was already placed in service by a taxpayer, a Previously Owned Clean Vehicle Credit generally is not available to a subsequent buyer. The taxpayer can rely on a vehicle history report as of the date of sale to determine eligibility, but still must obtain a successfully-submitted time-of-sale report to claim the credit.

In the case of a resale made by the buyer within 30 days of placing the vehicle in service, the buyer is treated as having purchased the vehicle with an intent to resell and a Previously-Owned Clean Vehicle Credit cannot be claimed. If the buyer had transferred the credit to the dealer at the time of purchase, the buyer is required to file a federal income tax return with an attached Form 8936 and Schedule A (Form 8936) and must repay the amount of the credit to the IRS. Because such vehicle was already placed in service by a taxpayer, a Previously-Owned Clean Vehicle Credit is not available to a subsequent buyer.

Q13. If a previously owned clean vehicle is sold after August 16, 2022, to a dealer that then sells it to another dealer, is the vehicle eligible for a Previously Owned Clean Vehicle Credit in the subsequent sale? (added July 26, 2024)

A13. Yes, if all other eligibility criteria for the previously owned clean vehicle credit are met. For purposes of the previously owned clean vehicle credit, this dealer-to-dealer transfer will not make the vehicle ineligible for this credit in a subsequent sale to an individual.

Q14. A previously owned clean vehicle is sold for the first time after August 16, 2022, to an individual for more than $25,000. Will this vehicle be eligible for the Previously Owned Clean Vehicle Credit if it is subsequently sold for less than $25,000? (added July 26, 2024)

A14. No, the vehicle is not eligible for the previously owned vehicle credit and will not be eligible for the credit in any subsequent sales. Only the first transfer of the vehicle after August 16, 2022, is eligible for the Previously Owned Clean Vehicle Credit, regardless of whether the taxpayer is eligible for the credit or chooses to claim or transfer the credit. See FAQ 7.

Q15. How do I know if a credit has been claimed on a previously owned clean vehicle? (added July 26, 2024)

A15. If a credit was claimed for the VIN after January 1, 2024, or the qualified manufacturer did not submit the vehicle identification number to the IRS as an eligible vehicle, the time of sale system will show that the VIN is ineligible for the credit. See Topic I, FAQ 29.

You will need to check the vehicle history report of the vehicle to ensure that the customer’s purchase will qualify as the first transfer of the previously owned vehicle after August 16, 2022 (see FAQ 4, FAQ 7, and FAQ 12), other than to the person who was the original user of the vehicle.