What to Know About Federal Tax Incentives for Pre-Owned Clean Energy Vehicles

November 23, 2022 | Alert

By Jenny McGarry

The Inflation Reduction Act of 2022 provides a new federal tax incentive for individuals purchasing certain pre-owned clean vehicles beginning January 1, 2024.

What are the qualifications?
The qualifying credit criteria for pre-owned vehicle includes:

  • The pre-owned vehicle’s sales price must not exceed $25,000.
  • The credit amount is the lessor of $4,000 or 30% of sales price.
  • Taxpayers’ Modified Adjusted Gross Income limitations (lessor of current or previous year):
    • $75,000 single
    • $112,500 head of household
    • $150,000 married filing joint
  • The used vehicle must be at least two years old.
  • The vehicle’s original use is with someone other than the taxpayer.
  • The credit is allowed on the first sale after the original purchase.
  • The used vehicle must be purchased from a dealership for use (not resale).
  • Taxpayers may apply for the credit every three years.

The Clean Vehicle Credit under Internal Revenue Code (IRC) Section 30D for new vehicles includes similar qualifications, but is more restrictive overall.

Beginning January 1, 2023, qualified new vehicles must meet the following requirements:

  • North America final assembly (required in August 2022).
  • A source requirement for applicable critical minerals.
  • A location requirement for the manufacturing of battery components.
  • Taxpayer Modified Adjusted Gross Income limitations.
  • Vehicle sales price limits.

What are the differences between the Pre-Owned Vehicle Credit and the Clean Vehicle Credit?
Both the Pre-Owned Clean Vehicle Credit and Clean Vehicle Credit have sales price and taxpayer income limitations although the thresholds for pre-owned clean vehicles are lower. Unlike the new vehicle credit, the credit for pre-owned vehicles does not have manufacturing or component requirements; however, it does restrict the purchaser and where a qualifying vehicle can be purchased.

What are the next steps for the Pre-Owned Clean Vehicle Credit?
In 2024 taxpayers purchasing a used clean vehicle may claim the nonrefundable Pre-Owned Clean Vehicle Credit. Like the credit for new clean vehicles, a transfer program allowing taxpayers to directly transfer the clean vehicle credit to the dealership is expected.

When considering the purchase of a new or previously owned electric vehicle it is also important to consider the variety of state incentives that may be available.

Questions about how the changes will impact you?

This article is provided for general informational purposes only. It is not legal, accounting or other professional advice, as it does not address any individual facts, circumstances or concerns. Before making personal or business related decisions, please consult with appropriate legal, accounting or other qualified professionals.

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