The Department of the Treasury recently introduced an interesting new feature to these existing tax credits.
Starting in 2024, eligible consumers can transfer the Clean Vehicle Tax Credit to the dealer they are purchasing the vehicle from in exchange for a reduction in the vehicle's price. This means that the full value of the credit can be realized immediately instead of waiting to claim it on a tax return later.
The credit doesn't have to be transferred to the dealer if the purchaser wants to claim it on their tax return. If your federal tax liability is not high enough, you may have to take a partial credit or none at all, so careful tax planning is necessary.
Read on below for some technical information about how to qualify.
What is the Credit?
There are two different credits for new and used vehicles:
Up to $7,500 tax credit for the purchase of a NEW qualifying “Clean Vehicle”
Up to $4,000 tax credit for the purchase of a USED qualifying “Clean Vehicle”
How do I qualify for the NEW vehicle credit?
The credit is available to businesses and individuals.
Baseline qualifications:
Buy it for your own use, not for resale
Vehicle must be new
Use it primarily in the U.S.
Your modified adjusted gross income (AGI) may not exceed:
$300,000 for married couples filing jointly.
$225,000 for heads of households.
$150,000 for all other filers.
Vehicle Qualifications:
Have a battery capacity of at least 7 kilowatt hours.
Have a gross vehicle weight rating of less than 14,000 pounds.
Be made by a qualified manufacturer.
Undergo final assembly in North America.
Meet critical mineral and battery component requirements.
In addition, the vehicle's manufacturer suggested retail price (MSRP) can't exceed:
$80,000 for vans, sport utility vehicles, and pickup trucks.
$55,000 for other vehicles.
How do I qualify for the USED vehicle credit?
The same base and vehicle qualifications listed above also apply for used vehicles except:
The model year must be at least two years old.
The vehicle may not have been transferred after August 16, 2022, to a qualified buyer other than the person who was the original user of the vehicle.
The vehicle must be purchased from a licensed dealer.
How do I know the amount of tax credit my vehicle qualifies for?
Staring in 2024, your new vehicle dealer will be required to provide you and the IRS with an information report that contains the following:
• Name and taxpayer identification number of the seller.
• Name and taxpayer identification number of the taxpayer (only one taxpayer may be listed on the seller report in the event of multiple owners; only the taxpayer that intends to claim the credit should be listed).
• Vehicle identification number (VIN) of the new clean vehicle.
• Battery capacity of the new clean vehicle.
• Verification that the taxpayer is the original user of the new clean vehicle.
• The date of the sale and the sale price of the vehicle.
• Maximum credit allowable for the new clean vehicle being sold.
• For sales after December 31, 2023, the amount of any transfer credit applied to the purchase.
• A declaration under penalties of perjury from the seller.
This information will prove everything needed to claim the credit on your tax returns.
Book a free initial consultation today if you have any questions about the credit and want to speak with a CPA.