The Inflation Reduction Act (IRA) made significant changes to the federal income tax credits available for the purchase of new clean vehicles and previously-owned clean vehicles.
The Internal Revenue Service (IRS) recently released Revenue Procedure 2022-42 providing new reporting requirements for clean vehicle sellers and manufacturers. These reporting requirements begin January 2023.
What are the new reporting requirements for dealerships?
Qualifying sellers have two new reporting requirements when selling new and used clean vehicles. A seller is defined as a dealer licensed with the appropriate jurisdiction to engage in the sale of vehicles.
A seller’s report must include:
Both credits are non-refundable and unused amounts are not eligible for carryforward to the next tax year. This requires the taxpayer to have sufficient federal income tax obligations in the year of purchase to fully claim the credit.
After December 31, 2023, taxpayers will have the option to transfer the credit directly to the seller at the time of sale. This transfer program will allow taxpayers to receive the benefit immediately and allow them to utilize the credit regardless of their annual tax obligation.
Summary of the New Clean Vehicle and Previously-Owned Clean Vehicle credit for 2022 and 2023
|NEW VEHICLE (2022)||NEW VEHICLE (2022)||NEW VEHICLE (2023)||USED VEHICLE (2023)|
|DATES||Before August 16, 2022||August 16, 2022 - December 31, 2022||January 1, 2023||January 1, 2023|
|MAXIMUM CREDIT AMOUNT||$7,500||$7,500||$7,500||$4,000|
|CRITICAL MINERALS||NOT REQUIRED||NOT REQUIRED||2023: 40% of the value||NOT REQUIRED|
|BATTER COMPONENTS||NOT REQUIRED||NOT REQUIRED||2023: 50% of the value||NOT REQUIRED|
|NORTH AMERICA ASSEMBLY||NOT REQUIRED||REQUIRED||REQUIRED||NOT REQUIRED|
|MAGI LIMITS||NONE||NONE||Single $150,000 ~ HOH $225,000 ~ MFJ $300,000||Single $75,000 ~ HOH
$112,500 ~ MFJ $150,000
|MSRP LIMIT||NONE||NONE||Sedans $55,000 Pickups, vans, SUVs $80,000||$4,000 or 30% of sales price, price not to exceed $25,000|
|SALE VOLUME CAP||NO TESLA AND GM||NO TESLA AND GM||NO CAP||NO CAP|
|OTHER CONSIDERATIONS||• Written binding contract if delivery August 16 – December 31, 2022||• No change other than North America assembly requirement
• Delivery by 12/31/2022
|• Critical mineral and battery component requirements increase annually||• 2-year old vehicle, second owner
• Purchased from a dealer
• Applicable every 3yrs
Applicable critical minerals must come from the United States or a country with a free-trade agreement with the United States:
Applicable battery components must be manufactured or assembled in North America.
What are the new reporting requirements for manufacturers?
To become a qualified manufacturer of clean vehicles, manufacturers also have a new reporting requirement. Manufacturers must submit a written statement and periodic reports with specific vehicle information to the IRS.
In addition to vehicle information, manufacturers must also certify that their vehicles meet the criteria of each credit. The responsibility to determine if a vehicle is eligible for the credit falls on the manufacturer. Revenue Procedure 2022-42 did not provide manufacturers with the guidance on the new critical mineral and battery requirements for the New Clean Vehicle Credit.
Do dealerships have other reporting requirements?
Dealers selling new clean vehicles to governments and tax-exempt entities may continue to be treated as the vehicle’s first owner and retain the credit. If the dealer retains the credit, the dealer must provide the buyer a written disclosure including the amount of credit retained.
What is the next step for dealerships?
Taxpayers and sellers may rely on the manufacturer’s certification when determining if a vehicle is eligible for a clean vehicle credit. Although it is the manufacturer’s responsibility to determine a vehicle’s eligibility, dealerships must be aware of their reporting requirements and evaluate procedures necessary to capture relevant clean vehicle sale information.
Our dealership advisors can help you manage energy efficiency credits to remain compliant and increase your cash flow.
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