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 2023-29PDF, Dec. 26, 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 Vehicle Credit under §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 sales price of $25,000 (see Topic E, FAQ 2) or less from a dealer and the purchasing taxpayer is the first qualified buyer (see Topic D 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 Oct. 6, 2023)

A3. Please see the following 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 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. 

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 Topic D 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 See Topic J FAQ 2, sellers will review vehicle history reports when making attestations regarding the vehicle’s eligibility and submitting seller reports.

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? (added Oct. 6, 2023)

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 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 vehicle, once returned, is not eligible for a Previously Owned Clean Vehicle Credit upon a subsequent sale if the vehicle history reflects that such subsequent sale is not a qualified sale. However, if the vehicle history does not reflect the prior sale and return, the vehicle remains eligible.

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 cannot claim a Previously Owned Clean Vehicle Credit with respect to the vehicle. Such vehicle was already placed in service by a taxpayer, and a Previously Owned Clean Vehicle Tax Credit is not available to a subsequent buyer.