Topic D — Frequently Asked Questions About the Eligibility Rules for the Previously-Owned Clean Vehicles Credit

Updated FAQs were released to the public in FS-2023-08PDF, March 31, 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. What is the previously-owned clean vehicles credit under § 25E? (added December 29, 2022)

A1. The previously-owned clean vehicles 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 to a qualified buyer since August 16, 2022, other than to the original owner.

Q2. What is a previously-owned clean vehicle for the purpose of the previously-owned clean vehicles credit? (added December 29, 2022)

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 sales price of $25,000 or less from a dealer and the purchasing taxpayer is the first qualified buyer (see FAQ 4) to claim the credit since August 16, 2022, other than its original user
• And 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 report containing purchaser 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? (added December 29, 2022)

A3. Please see the Used Electric Vehicle Credit list about 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 to a qualified buyer (see FAQ 4, 7) other than the person who was the original user of the vehicle.

Q4. Who is eligible to claim the previously-owned clean vehicle credit? (updated February 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 December 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 December 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 since the date of enactment of a previously-owned clean vehicle? (added December 29, 2022)

A7. It is the first transfer of the vehicle after August 16, 2022, to a qualified buyer of the previously-owned clean vehicle credit other than the person who was the original user of the vehicle. See FAQ 4 for more information on individuals eligible to claim the previously-owned clean vehicle credit.

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 December 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? (added December 29, 2022)

A9. No. To qualify for the credit, the previously-owned clean vehicle must be purchased from a dealer. A dealer is a person licensed to engage in the sale of motor vehicles in a State, the District of Columbia, the Commonwealth of Puerto Rico, any other territory or possession of the United States, an Indian tribal government, or any Alaska Native Corporation.

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-owed clean vehicle credit? (added December 29, 2022)

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