Highlights of the article: • Assembly Requirement
• August 15 Deadline
• Transition Rule
• The New Law
• Income Limit
• Manufacturer's Suggested Retail Price Limitation
• New Vehicle Definition
• Credit Transfer to Dealer The electric vehicle credit has undergone significant adjustments as a result of the recent passing of the Inflation Reduction Act of 2022. Although the majority of the changes take effect in 2023, cars acquired after August 15, 2022, must fulfill the new law's final assembly criterion to qualify for the existing discount. This requirement requires automobiles sold after August 15, 2022, to be assembled in North
America.
"Final assembly" indicates that the manufacturer must create new clean automobiles in a North American plant, factory, or other location from which the vehicle is delivered to a dealer with all essential components for the mechanical operation of the vehicle.
The US Department of Energy has compiled a preliminary list of cars that may fulfill the final
assembly in North America criterion for Model Year 2022 and early Model Year 2023. Although the present rule that phased down the credit when a manufacturer manufactured
200,000 vehicles was repealed in 2023, it still applies to automobiles delivered in 2022. Even if those cars fulfil the final assembly criteria, the 200,000 restriction means they may not qualify for credit or receive reduced credit in 2022, but they will qualify again in 2023 under the revised standards. The 200,000-person maximum has been achieved, according to the US Department of Energy. Visit the IRS website for a list of approved automobiles to discover whether your vehicle is still eligible for a reduced credit. Transition Rule - The legislation also includes a transition rule in which a taxpayer who purchases, or enters a written binding contract to purchase, a new plug-in electric drive motor vehicle between January 1, 2022 and August 16, 2022, and places that vehicle in service on or after August 16, 2022, may elect to use the credit rules in effect before the Inflation Reduction Act changes, thereby avoiding the final assembly and other requirements of the new law. The New Regulation - The new rule, which goes into effect on January 1, 2023, has certain more strict conditions, such as requiring essential minerals and other battery components used in the construction of a qualified vehicle to be manufactured in North America. Because of the existing scarcity of these important minerals, this need will be phased in until 2029, providing manufacturers time to find North American supplies. Beginning in 2023, the bill also puts income limitations on who qualifies for the credit, as well as price limits on cars qualifying for the benefit, as follows: Income limitation - No credit is permitted for any tax year if the lesser of the taxpayer's modified adjusted gross income (MAGI) for the:
• Current tax year, or • Previous tax year
Exceeds the threshold amount shown in the table below. As a result, there is no phase-out;
simply one dollar above the limit results in no credits. MAGI is adjusted gross income plus any overseas earned income, housing exclusions, and income from Guam, American Samoa, the Northern Mariana Islands, and Puerto Rico. Manufacturer's Suggested Retail Price Restrictions - No credit is available for vehicles with a manufacturer's suggested retail price more than the following:
Whereas former law required a qualifying vehicle to have a battery with a minimum of 4 kilowatt-hours, after 2022 a qualifying vehicle's battery must have a minimum of 7 kilowatt-hours. Transfer of Credit to the Dealer After 2022, the new law has an intriguing twist that permits a taxpayer to use the credit to decrease the cost of the car. This is performed by the taxpayer, who can decide to transfer the clean vehicle credit to the dealer from. whom the taxpayer is acquiring the vehicle on or before the purchase date in exchange for a reduction in purchase price equal to the credit amount.
Making the election cannot restrict the use or value of any other dealer or manufacturer inducement to purchase the car, nor can its availability or usage limit the taxpayer's capacity to make the election. A buyer who chose to transfer the credit for a new clean vehicle to the dealer and got credit from the dealer but whose MAGI exceeds the appropriate limit must recoup the credit amount on their tax return for the year the vehicle was placed in service.
Credit for Used Automobiles - The new law offers credit for used clean vehicles acquired from a dealer for $25,000 or less. This credit is only available to taxpayers whose MAGI is less than half of the MAGI limit for the new clean vehicle credit the first time the vehicle is resold. The credit is equal to $4,000 or 30% of the purchase price, whichever is less. Other aspects of this credit, however, require further clarification from the IRS. Keep an eye out for further details in the future. If you have any concerns concerning the new requirements for the clean car credit, please contact our office for more information.