The IRS recently released guidance (Notice 2023-16) modifying the definitions of certain vehicle classifications for the new clean vehicle credits under Section 30D. The guidance changes the vehicle classification standards for determining the price limits on vans, sport utility vehicles (SUVs) and pickup trucks.
Section 30D credit generally limits the tax credit to vehicles with a manufacturer’s suggested retail prices not exceeding $80,000 for vans, SUVs, and pickup trucks, and $55,000 for any other vehicle.
Older guidance (Notice 2023-1) provided that a vehicle’s vehicle classification would to be determined consistent with the rules and definitions provided in 40 CFR 600.002 for vans, SUVs and pickup trucks. Automakers complained that the rules were overly strict and subjected some vehicles considered SUVs for EPA emissions rules to the lower $55,000 threshold.
In response, Notice 2023-16 amends the rules in Notice 2023-1 to provide that a vehicle’s classification will be determined consistent with the fuel economy labeling regime described in 40 CFR 600.315-08 for vans, SUVs, pickup trucks and passenger vehicles, as classified by the EPA.
Treasury announced in an accompanying news release that the change was made to make it easier for consumers to know which vehicles qualify under the applicable MSRP cap, and to allow crossover vehicles that share similar features to be treated consistently. The updated list of vehicles subject to the $80,000 MSRP limitation on the IRS website includes General Motors' Cadillac Lyriq, the Ford Mustang Mach-E and Tesla's Model Y.
Taxpayers may rely on the updated definitions for new clean vehicles placed in service on or after Jan. 1, 2023.
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