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IRS Issues Guidance Related to Clean Vehicle Credits

Friday, March 17, 2023 9:00 AM | Anonymous member (Administrator)

The Internal Revenue Service today issued Notice 2023-16 that modifies the definitions of certain vehicle classifications for the new, previously owned and qualified commercial clean vehicle credits. As a result of this notice, the IRS updated the related frequently-asked-questions (FAQs) for these credits.

Today’s guidance modifies Notice 2023-01 by changing the vehicle classification standard by which vans, sport utility vehicles, pickup trucks and other vehicles are defined. Fact Sheet 2023-4 updates FAQs related to new, previously owned and qualified commercial clean vehicles.

The FAQs revisions are as follows:

  • Topic A: Eligibility Rules for the New Clean Vehicle Credit: Questions 1 and 8
  • Topic B: Income and Price Limitations for the New Clean Vehicle Credit: Questions 2, 6, 8, 9 and added new Question 7
  • Topic C: When the New Requirements Apply to the New Clean Vehicle Credit: Question 7
  • Topic D: Eligibility Rules for the Previously Owned Clean Vehicle Credit: Question 4
  • Topic G: Qualified Commercial Clean Vehicles Credit: Question 6

These FAQs are being issued to provide general information to taxpayers, tax professionals and others interested in the issue as expeditiously as possible. More information about reliance is available here.

The NADA also provides additional guidance:

Effective Jan. 1, 2023, a federal previously-owned clean vehicle tax credit (Used EV Credit) potentially applies to used battery electric (BEV), plug-in hybrid electric (PHEV), or fuel cell electric (FCEV) vehicles sold by licensed dealers between 2023 and 2032. The maximum Used EV Credit is the lesser of $4,000 or 30% of the sales price. But, as detailed below, many used EV sales will be ineligible for a Used EV Credit. To the extent possible, before buying a used EV, determine whether a Used Vehicle Credit may apply when the EV is later sold by the dealership.  

I. For starters, to be eligible for a Used EV Credit, used EVs must:

  • Have been manufactured by a qualified OEM (virtually all were);
  • Be under 14,000 lbs GVWR (if not sure, check the certification label on the driver-side door frame or B-pillar);
  • Be propelled by a battery of at least 7 kWh (a concern only for PHEVs) or be a FCEV; and    
  • Be two model years old or older than the year of sale (i.e, for sales in 2023, MY 2021 or older).

Bottom Line: The above requirements should be easy to determine prior to buying a used EV.      

II. Also, to be eligible for a Used EV Credit, a used EV may not have been sold after 8/16/22 to a Qualified Buyer who was not the original owner. A Qualified Buyer is someone who:

  • Is an individual (not a business, etc.) who cannot be a deducted on someone else’s tax return;
  • Purchased the vehicle for use in the U.S. and not for resale; and
  • Has not claimed a Used EV Credit for a purchase made within the last 3 years.

Bottom Line: If a used EV is sold after 8/16/22 to a Qualified Buyer who was not the first owner, the Used EV Credit is no longer available for that EV. However, it may be difficult to determine with certainty whether a prior used EV owner was a Qualified Buyer. Yes, a vehicle history report should show if a used EV was sold after 8/16/22 to an individual who took title in the United States in his or her name. But, determining whether that buyer was deductible on someone else’s taxes, or previously claimed a Used EV Credit, will be difficult at best. Only if a used EV was not sold after 8/16/22 or was sold since then but only to non-individuals (e.g., businesses), will it be reasonable to assume that it was not previously sold to a Qualified Buyer and may qualify for a Used EV Credit.    

III.  When a used EV is sold at retail, four additional requirements must be met for a Used EV Credit to apply. Specifically:   

  • The purchaser must be a Qualified Buyer (see above) that did not buy the EV new;  
  • The purchaser must have a Modified Adjusted Gross Income below the applicable cap;[1]
  • The sale must be by a licensed dealer for a price that does not exceed $25,000; and
  • The selling dealer must provide the eligible purchaser with a copy of the required report form (under Section 25E).

[1] $150,000 for married filing jointly or a surviving spouse, $112,500 for heads of households, $75,000 for all other tax filers

Bottom Line: Even if one or more of the above four requirements cannot be met, customers often will be willing to purchase a used EV without a federal Used EV Credit.  

Chicago Automobile Trade Association
18W200 Butterfield Rd.
Oakbrook Terrace, IL 60181 
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