As part of The Inflation Reduction Act, signed into law on August 16, 2022, the federal government approved a tax credit for certain qualifying purchasers of used clean vehicles, including most electric vehicles. Starting January 1, 2023, individuals who purchase a qualifying used clean vehicle may be eligible for a tax credit of the lesser of $4,000 or the amount equal to 30 percent of the sale price. (26 USCS § 25E(a).) However, there are a number of requirements that must be met in order for a purchaser to be eligible for the tax credit.
In order to qualify for the tax credit for the purchase of a used electric vehicle, the purchaser and vehicle must meet the following criteria:
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- The purchaser must be an individual;
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- The vehicle must be for the purchaser’s use and not for resale;
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- The purchaser must not be listed as a dependent on any other individual’s tax return;
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- The purchaser must not have been allowed this credit for any sale during the three year period ending on the date of the sale;
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- The purchaser’s modified adjusted gross income must be less than $150,000 for a jointly filed/surviving spouse return; $112,500 for a head of household return; or $75,000 for all other returns;
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- The vehicle must be a model year which is at least two years earlier than the calendar year in which it is purchased (i.e. a 2021 model year would be the latest to qualify in 2023);
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- The vehicle must have been previously owned by someone other than the purchaser;
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- The vehicle must be purchased from a dealer, for a sale price not to exceed $25,000, and there must have been no prior transfer of the vehicle subsequent to August 16, 2022, to someone other than the original owner;
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- The vehicle must meet a partial definition as a clean vehicle per federal law, in that it must be made by a qualified manufacturer, must be treated as a motor vehicle per the Clean Air Act, has a gross vehicle weight rating of less than 14,000 pounds, which has a battery with a capacity of not less than seven kilowatt hours and can be recharged from an external source of electricity, and the selling dealer must provide a form to the purchaser and the Secretary of Transportation which provide the necessary information regarding the sale to confirm the vehicle’s status as a clean vehicle;
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- The vehicle must have an issued and assigned Vehicle Identification Number; and
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- The rules relative to the new clean vehicle credit should also apply where these rules do not supplant them. (See 26 USCS § 30D, excluding paragraphs 10 and 11.)
(26 USCS § 25E(b)-(e).)
If the sale meets all of the above requirements and conditions, the purchaser is likely entitled to some tax credit. In order to obtain that benefit, the dealer should provide the purchaser with a form which complies with 26 USCS § 30D(d)(1)(H) and which is substantially similar to the forms in use for the older new clean vehicle credits at the time of sale. For more information, please see the Internal Revenue Service’s guide for this credit or feel free to contact us. IRS Guide.
