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Tom Talks Taxes - September 9, 2022
An overview of the revised §30D clean vehicle credit
During September, I will be reviewing the three Inflation Reduction Act vehicle credits:
Revised §30D clean vehicle credit,
New §25E previously-owned clean vehicle credit, and
New §45W qualified commercial clean vehicle credit.
The existing §30D credit is a permanent tax credit for new plug-in electric drive motor vehicles. The maximum credit is $7,500 based on the vehicle’s battery capacity. The major limitation on the existing §30D credit is the manufacturer: once a manufacturer has sold 200,000 vehicles, the credit begins a phase-out to $0.
The existing §30D credit applies to any vehicle placed in service on or before August 16, 2022.
For vehicles placed in service after August 16, 2022, and before January 1, 2023, the existing §30D credit applies with one substantial change: a vehicle only qualifies for the credit if its final assembly occurred in North America. The Department of Energy provided a list of vehicles meeting this requirement. There is a transition rule allowing individuals who entered into a written binding contract before August 16, 2022 to claim the credit based on the rules in effect before August 16, 2022; the IRS provided website guidance on what constitutes a written binding contract.
Now let’s get to the fun part: the revised §30D credit, which applies to vehicles placed in service after December 31, 2022, and before January 1, 2033. The §30D credit terminates for vehicles placed in service on or after January 1, 2033.
The maximum credit remains at $7,500: $3,750 from meeting critical mineral requirements and $3,750 from meeting battery component requirements.
A qualifying new clean vehicle must meet the following requirements:
Original use commences with the taxpayer,
Acquired for use or lease by the taxpayer and not for resale,
Made by a qualified manufacturer [who provides vehicle identification numbers (VIN) for qualifying vehicles to the IRS per mutual agreement],
Treated as a motor vehicle for purposes of title II of the Clean Air Act,
Has a gross vehicle weight rating of less than 14,000 pounds,
Propelled to a significant extent by an electric motor that draws electricity from a battery that has a capacity of not less than 7 kilowatt hours and is capable of being recharged from an external source of electricity,
Final assembly occurs within North America, and
The seller provides an informational statement to the taxpayer and the IRS.
A new clean vehicle also includes a fuel cell vehicle meeting the requirements of §30B(b)(3) for which final assembly occurs within North America and the seller provides an informational statement to the taxpayer and the IRS.
The following rules apply to both the existing and revised §30D credit:
The credit amount reduces the vehicle basis.
Any other deduction or credit allowed for a vehicle is reduced by the §30D credit amount.
A vehicle used predominantly outside the United States is ineligible.
The IRS can recapture the credit for a vehicle that ceases to be eligible.
A taxpayer can elect not to claim the §30D credit.
The following rules apply only to the revised §30D credit:
One §30D credit is allowed per vehicle, based on the VIN, and
The VIN must be provided on the taxpayer’s return.
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Two new limits apply to the revised §30D credit: modified adjusted gross income (MAGI) and manufacturer’s suggested retail price (MSRP).
If a taxpayer’s MAGI (adding back §911, §931, and §933) exceeds the following amounts, no credit is allowed:
$300,000 for a joint return or a surviving spouse,
$225,000 for a head of household, or
$150,000 for all other filing statuses.
To apply the MAGI limit, the taxpayer uses the lesser of MAGI in the current tax year or the MAGI in the immediately preceding tax year. This provision stops unanticipated increased income in the year of purchase from preventing §30D credit eligibility.
A vehicle’s MSRP cannot exceed the following amounts:
$80,000 for vans, sports utility vehicles, and pickup trucks, or
$55,000 for all other vehicles.
For vehicles placed in service after December 31, 2023, a taxpayer can elect to transfer their credit to treat it as a payment to the dealer. This election must be made no later than the purchase date of the vehicle. If a taxpayer who makes this election ultimately does not qualify for the §30D credit, their total tax is increased by the payment amount. This provision allows a taxpayer to get the full credit value in the year of purchase even if their total tax is less than the credit amount.
Here are additional considerations for the §30D credit:
Taxpayers above the MAGI limits should purchase a vehicle during 2022 if they want the §30D credit or use tax planning to reduce MAGI in 2023 and/or 2024.
Married filing separately will likely be a credit strategy for a married couple consistently over the MAGI limit; however, how this applies to jointly owned vehicles is not known.
Taxpayers who want to purchase a vehicle above the MSRP limits should purchase a vehicle during 2022 if they want the §30D credit.
Taxpayers who want to purchase a vehicle which has met the manufacturer limit should purchase a vehicle during 2023 if they want the §30D credit.
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