Topic H — Frequently asked questions about transfer of New Clean Vehicle Credit and 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 section 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 transfer election for a new clean vehicle or previously owned clean vehicle? (updated July 26, 2024)

A1. The transfer election allows a taxpayer purchasing a new clean vehicle or previously owned clean vehicle after December 31, 2023, to transfer the entire amount of the allowable credit to an eligible entity (a registered dealer) in exchange for a financial benefit (a reduced final amount due from buyer) from the eligible entity equal to the amount of the credit, whether in cash, in the form of a partial payment, or down payment for the purchase of such vehicle. In short, the credit can be applied at the point of sale to reduce the amount due from the buyer for the purchase of the vehicle. Eligible taxpayers who purchase an eligible vehicle and do not make the transfer election will still be able to claim the New or Previously Owned Clean Vehicle Credit on their federal income tax return, under sections 30D or 25E, respectively.

See Topic A, FAQ 7 and Topic F, FAQ 3 regarding refund and carryover treatment of the Clean Vehicle Credits at the time of tax filing.

Q2. Who can receive a transferred New or Previously Owned Clean Vehicle Credit? (updated July 26, 2024)

A2. Only an eligible entity can receive a transferred New or Previously Owned Clean Vehicle Credit. An eligible entity is generally a dealer that sells a new clean vehicle or a previously owned clean vehicle to a taxpayer and registers with the IRS as required by the applicable regulations. For purposes of these FAQs, an eligible entity is referred to as a "registered dealer." 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.

Q3. What are the requirements a buyer must meet to be eligible to transfer the New Clean Vehicle Credit or Previously Owned Clean Vehicle Credit to a registered dealer? (updated July 26, 2024)

A3. A buyer must be an individual and meet all eligibility requirements for the New Clean Vehicle Credit or Previously Owned Clean Vehicle Credit, as applicable. See Topic A, Topic B, Topic D, and Topic E. An individual does not include individuals that are listed on the Time Of Sale reports where the buyer is a grantor trust, and the individual’s name and taxpayer identification number is listed as the grantor or other deemed owner of the trust, or the buyer is a disregarded entity such as a single member LLC where the individual’s name and taxpayer identification number is listed as taxable owner of the disregarded entity.

Q4. What if a buyer has insufficient tax liability to fully use a transferred credit? (added Oct. 6, 2023)

A4. The amount of the credit that the electing taxpayer elects to transfer to the eligible entity may exceed the electing taxpayer's regular tax liability for the taxable year in which the sale occurs, and the excess, if any, is not subject to recapture from the dealer or the buyer.

Q5. What information does a registered dealer need to provide a buyer and when? (updated April 15, 2024)

A5. Not later than the time of sale, the registered dealer must provide the buyer with a written disclosure containing the following information under penalty of perjury:

• The MSRP of the new clean vehicle or the sale price of the previously owned clean vehicle.
• The maximum amount of the credit allowable and any other incentive available for the purchase of such vehicle.
• The amount provided by the dealer to you as a condition of you making the transfer election.
• • The modified AGI limitations provided in section 30D(f)(10) (in the case of a new clean vehicle) or section 25E(b)(2) (in the case of a previously owned clean vehicle), as applicable. See Topic B, FAQ 1 and Topic E, FAQ 1.
• For previously owned clean vehicles, certification that:
  • The model year of the vehicle is at least two years prior to the calendar year of sale; and
  • That the transfer is the first transfer of the vehicle since Aug. 16, 2022, to a person other than the person with whom the original use of such vehicle commenced.

Not later than the time of sale, the registered dealer must also provide you a copy of the seller report submitted for the vehicle (See Topic B,  FAQ 9 and Topic, D FAQ 2) and confirmation of the successful submission of the report through IRS Energy Credits Online.

Q6. What information do I need to provide to the registered dealer and when? (added Oct. 6, 2023)

A6. Not later than the time of sale, you must provide the registered dealer with the following:

• Date of the transfer election.
• Your taxpayer identification number.
• A photocopy of your valid, government-issued photo identification document.
• An attestation, that either:
  • Your prior year modified AGI did not exceed the modified AGI limitation, or, if not known, to the best of your knowledge and belief, your prior year modified AGI did not exceed such limitation, or
  • To the best of your knowledge and belief, your current year modified AGI will not exceed the modified AGI limitation. See Topic B, FAQ 1 and Topic E, FAQ 1.
• For new clean vehicles, an attestation that the vehicle will be used predominantly for personal use.
• For previously owned clean vehicles, an attestation (or declaration) that you are a qualified buyer. See Topic D FAQ 4.
• An attestation that you will file an income tax return for the taxable year in which the vehicle is placed in service on or before the due date of the return (including extensions), reporting your eligibility for the New Clean Vehicle Credit or Previously Owned Clean Vehicle Credit, as applicable, including the vehicle's VIN, and your election to transfer the credit to the dealer and repaying any credit amounts subject to recapture (if applicable).
• An attestation that you are making this election prior to placing the vehicle in service and this is the first or second transfer election you have made during the taxable year.
• An attestation that in the event you exceed the applicable modified AGI limitations, you will repay the amount received as an addition to tax for the tax year the vehicle was placed in service.
• An attestation that you have voluntarily elected to transfer the credit.

Q7. How many transfer elections can I make in a year? (added Oct. 6, 2023)

A7. You can make no more than two elections to transfer a clean vehicle credit each tax year. Such elections could be for two Clean Vehicle Credits or one Clean Vehicle Credit and one Previously Owned Clean Vehicle Credit, but cannot be for two Previously Owned Clean Vehicle Credits. Accordingly, spouses may each transfer no more than two Clean Vehicle Credits each tax year.

Q8. Can I transfer part of the credit? (added Oct. 6, 2023)

A8. No. As a buyer, you must transfer the entire amount of the credit allowable to you to the registered dealer.

Q9. When will the transfer election program be in effect? (added Oct. 6, 2023)

A9. The transfer election program applies to vehicles placed in service after Dec. 31, 2023, and before Dec. 31, 2032.

Q10. What if I end up exceeding the modified AGI limitations for the year? (added Oct. 6, 2023)

A10. If your modified AGI exceeds the limitations for the taxable year, you will be required to repay the amount received for transferring the tax credit as an addition to tax for the tax year the vehicle was placed in service.

Q11. If the IRS rejects the seller report submitted by the registered dealer, can I still claim the credit? (updated July 26, 2024)

A11. No. To claim the New Clean Vehicle Credit or Previously Owned Clean Vehicle Credit, the seller report for the vehicle must be accepted by the IRS. For vehicles placed in service January 1, 2024, or later, the IRS will accept or reject submissions of seller reports in real time and will notify the dealer in the event of a rejection. Buyers and dealers are strongly encouraged to obtain confirmation of a successfully submitted seller report before finalizing a sale and placing a vehicle in service. Dealers must provide confirmation of an accepted IRS Energy Credits Online seller report submission to buyers.

Q12. What benefits may a buyer get in exchange for transferring a Clean Vehicle Credit to a registered dealer? (updated July 26, 2024)

A12. A dealer can provide a buyer with a financial benefit in cash or in the form of a partial payment or down payment for the purchase of the vehicle, or as a reduction in sale price of the vehicle without the payment of cash. The taxpayer benefits by receiving an immediate financial benefit at the time of sale, rather than having to wait to file a tax return and claim the credit. A buyer that transfers a clean vehicle credit to a registered dealer is required to file a tax return for the year of the transfer to reconcile the transfer of the credit.

Q13. Can I change my mind about whether to transfer a tax credit after a sale has been finalized? (added Oct. 6, 2023)

A13. No. The transfer election is final.

Q14. How does a dealer know the IRS will issue an advance payment to the dealer? How quickly will the IRS issue advance payments? (updated July 26, 2024)

A15. Dealers are not required to verify a buyer's income for a credit transfer or advance payment and are not required to repay the advance payment if the buyer exceeds the income limits. Dealers are required to disclose information about the applicable income limits to the buyer, who must attest that he or she expects to qualify for the credit. A buyer who transfers a credit must file a federal income tax return with an attached Form 8936 and Schedule A (Form 8936) reporting the transfer of the credit and information regarding whether they met the applicable income limits. A buyer who does not meet the applicable income limits will have to pay back the credit to the IRS when they file their income tax return reporting information about their eligibility for the credit.

Q15. Are dealers liable for repaying the advance payment if the buyer exceeds the applicable income limits? Are dealers required to verify a purchaser's income in order to receive an advance payment? (updated July 26, 2024)

A15. Dealers are not required to verify a purchaser's income for a credit transfer or advance payment and are not required to repay the advance payment if the purchaser exceeds the income limits. Dealers are required to disclose information about the applicable income limits to the purchaser, who must attest that he or she expects to qualify for the credit.

Q16. Do I have to transfer a tax credit when I am eligible and a dealer asks? (added Oct. 6, 2023)

A16. No. Registered dealers cannot require that a buyer transfer a tax credit in order to purchase a new or previously owned clean vehicle.

Q17. Can I transfer a credit if I will use the vehicle for both personal and business use? (added Oct. 6, 2023)

A17. You can transfer the New Clean Vehicle Credit only if you intend to use the vehicle predominantly for personal use.

Q18. What happens if a vehicle is returned or a sale is cancelled after a credit is transferred? (updated July 26, 2024)

A18. If a sale is cancelled before the taxpayer places the vehicle in service (that is, before the taxpayer takes possession of the vehicle), the vehicle will still be eligible for a clean vehicle credit upon a subsequent qualifying sale to another taxpayer. In that case, the credit would not yet have been transferred. 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.

In the case of return of a new clean vehicle made within 30 days of placing the vehicle in service, the buyer cannot claim a clean vehicle credit with respect to the vehicle. Such vehicle, once returned, was already placed in service by a taxpayer and a clean vehicle credit for new clean vehicles is not available to a subsequent buyer. See Topic A, FAQ 12 for claim eligibility.

In the case of a return of a previously-owned clean vehicle, the vehicle, once returned, generally is not eligible upon a subsequent sale. 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 the credit. See Topic D, FAQ 12 for claim eligibility.

If the taxpayer made an election to transfer the clean vehicle credit for a vehicle that was subsequently returned, that vehicle transfer election is nullified, and any advance payment made pursuant to the clean vehicle credit transfer rules will be recaptured from the eligible entity (registered dealer) as an excessive payment.

Q19. How are transferred tax credits treated for tax purposes? (updated July 26, 2024)

A19.

For dealers: Advance payments received by the registered dealer are not treated as a tax credit to the dealer and may exceed the dealer’s regular tax liability. Advance payments received by the registered dealer are not included in the gross income of the dealer. The payment made by the registered dealer to the buyer in exchange for the transferred credit is not deductible by the dealer. Such payment is treated as repaid by the buyer to the registered dealer as part of the purchase price of the vehicle and therefore is treated as included in the total amount received from the sale transaction.

For buyers: The payment made by the registered dealer to the buyer in the form of cash, or in the form of a partial payment, or for the purchase of the vehicle, or as a reduction in sale price of the vehicle without the payment of cash or partial down payment is not includible in the gross income of the buyer. Such payment made by the registered dealer is treated as an advance payment of the credit to the buyer on behalf of the Secretary of the Treasury and the basis of such vehicle is reduced by the amount of such credit.

Q20. Do dealers and buyers need to claim transferred tax credits when filing their tax return? (added Oct. 6, 2023)

A20.

For dealers: No. The exclusive method for dealers to claim transferred tax credits is via the advance payment program through IRS Energy Credits Online.

For buyers: An electing taxpayer must file an income tax return for the taxable year in which the vehicle transfer election is made that notes such election. Specifically, the electing taxpayer must file a Form 1040, U.S. Individual Income Tax Return, and attach a completed Form 8936, Clean Vehicle Credits, or successor form, and any other additional forms, schedules or statements prescribed by the Commissioner of the IRS for purposes of making a return to report tax under Chapter 1 of the Internal Revenue Code.

Q21. When do buyers need to repay tax credits transferred to the dealer? (added Oct. 6, 2023)

A21. If you transfer a credit to a registered dealer but exceed the relevant income limitations, you will need to repay the IRS when filing your tax return. Do not repay the dealer for a transferred tax credit if you end up not being eligible for the credit upon filing your tax return.

Q22. If a buyer uses the New Clean Vehicle Credit as a down payment when they buy a new clean vehicle, can that amount be used to lower the MSRP for purposes of meeting the statutory MSRP limitation and qualifying for the credit? (added July 26, 2024)

A22. No, a Clean Vehicle Credit does not lower the total MSRP of a vehicle.

Example: MSRP and agreed sale price are $50,000. The New Clean Vehicle Credit is used as a down payment. The amount due to the seller from the buyer is now $42,500 ($50,000-$7,500). However, the MSRP of the vehicle is still $50,000 for purposes of the statutory MSRP limitation, which applies in determining eligibility for the credit.

Q23. Does a dealer have to offer the buyer the option to transfer the credit to the dealer, or can dealers just leave the credit between the buyer and the IRS? (added July 26, 2024)

A23. Dealers are not required to offer a credit transfer option, and the buyer can claim the credit on their return. Whether to offer the buyer the option to transfer the credit is a business decision to be made by the dealer. Although the dealer may decide whether or not to register with the IRS to become an eligible entity to receive the advanced payment of the credit, the dealer is required to register with the IRS and report all sales of vehicles qualifying for the credits under section 30D and section 25E to the IRS to enable the buyer to claim the credit, regardless of whether or not the buyer elects to transfer the credit to the dealer.

If the buyer elects to transfer the credit to the dealer, the dealer only acts as a transfer agent. The transferred credit is not income to the dealer when received, and it is not an expense when paid out in the form of cash, or in the form of a partial payment or down payment for the purchase of the vehicle, or as a reduction in sale price of the vehicle without the payment of cash.

Q24. I am a dealer and my advance payment registration was rejected. What can I do? (added July 26, 2024)

A24. Confirm with your bank that you are using the correct ACH routing number. If your banking information changes, if you have a new account number, or if your banking institution was bought out, etc., you must re-register with your new account information promptly to avoid further processing delays. To re-register, click the “resubmit registration” button on the Dealer Registration Form. You will have to first re-register for the time-of-sale reporting by re-inputting all dealer information (e.g., mailing address). Then you will have to re-register for advance payments where you will input your new or corrected bank information.

Q25. Is the credit able to be transferred when the buyer and dealer are in different states? (added July 26, 2024)

A25. Yes. There is no restriction on buyer’s location if sold by a state-licensed dealer to an eligible individual for use within the United States.

Q26. Can customers use the state rebate along with the Federal credit? (added July 26, 2024)

A26. We can only address the Federal credit. Check with your tax professional for specifics on any state rebate or credit and for the applicable sale price of the vehicle for state tax purposes.

Q27. What if someone else pays for the vehicle? Who claims the credit, the registered owner, or the payer? (added July 26, 2024)

A27. The registered owner of the vehicle is the party eligible to claim the credit. The credit will be allowed only on the Federal income tax return of the taxpayer listed in the seller report. Thus, if a minor is listed on the seller report as buying the car, the minor must also be the tax return filer.

Revenue Procedure 2023-33 requires a copy of the electing taxpayer’s government issued photo ID, not the ID of who is paying for the vehicle.

Please consult with your tax advisor regarding potential gift tax consequences of such an arrangement.

Q28. Will buyers have to report anything on their federal tax return if they use the transferred credit as a down payment on the vehicle, or receive a payment from the dealer in the amount of the credit as cash? (added July 26, 2024)

A28. Yes. Buyers will need to report the purchase for which they elected to transfer the credit on their federal tax return using Form 8936, Clean Vehicle Credits, and Schedule A (Form 8936), Clean Vehicle Credit Amount. The buyer will need the time-of-sale report from the dealer in order to complete Form 8936.

Q29. I am a dealer and my advance payment registration still shows that it is pending. How can I get it out of pending status, so I can report sales? (added July 26, 2024)

A29. Your advance payment registration will show as pending for 15 days, which is the minimum waiting period. There is no option to expedite the advance payment registration process. Once 15 days have passed and you are registered, IRS ECO will then allow you to begin submitting seller reports that include a transfer of credit and advance payment request. If it has been longer than 15 days and you are still seeing the banner that indicates registration is pending, please let us know by submitting a screen shot to irs.clean.vehicles.dealer.info@irs.gov. Even if it has been longer than 15 days, a seller should not submit an inaccurate seller report and/or discount the price of a vehicle in anticipation of receiving an advance payment from the IRS at a later date. IRS Energy Credits Online provides real-time confirmation about a transaction for dealers, sellers and buyers. Dealers will not have confirmation from the IRS regarding a clean vehicle credit transfer if the seller report is not submitted until after the vehicle is placed-in-service.

Q30. Is every new and previously owned clean vehicle sale required to be reported even if the buyer chooses not to transfer the credit? (added July 26, 2024)

A30. Yes, dealers of new clean vehicles and previously owned clean vehicles must meet the seller reporting requirements for those vehicles to be eligible for a credit under sections 30D and 25E. For eligible clean vehicles placed in service on or after January 1, 2024, the dealer must submit all reports through IRS Energy Credits Online within 3 calendar days of the date of sale. The dealer must also provide the buyer with a copy of the accepted seller report submitted to IRS Energy Credits Online within 3 calendar days of the date of submission. Commercial clean vehicle transactions do not need to be reported to IRS Energy Credits Online.