Final regulations for consumer-oriented electric vehicle tax credits, created by the 2022 Inflation Reduction Act, were published by the IRS on May 6, providing rules for complying with mineral and battery sourcing and assigning the credit to dealers for an immediate rebate.
The final regulations largely follow previous guidance issued on the credits, including:
- Proposed regulations (REG-118492-23) on the rules for determining whether the sourcing of applicable critical minerals and battery components is compliant with restrictions on sourcing from foreign entities of concern (FEOC).
- Proposed regulations (REG-120080-22) provide key preliminary information on the critical mineral and battery sourcing requirements.
- Rev. Proc. 2023-38 offering rules for qualified manufacturers to comply with reporting and certification requirements
- Rev. Proc. 2022-42 (link) outlining reporting requirements for manufacturers and sellers of new or previously owned clean vehicles
- Proposed regulations, Rev. Proc. 2023-33 and frequently asked questions (links here, here, and here) detailing how consumers can transfer electric vehicle credits to dealers for an immediate rebate at the time of purchase.
The IRA significantly modified the existing clean vehicle tax credit under Section 30D, removing a per-manufacturer limitation and offering a credit of up to $7,500 if mineral and battery sourcing requirements are met and the vehicle undergoes final assembly in North America. The vehicles also must meet cost requirements based on manufacturer suggested retail prices, and there are income limitations for taxpayers claiming the credit. The IRA also created a new credit for previously owned vehicles under Section 25E and a credit for commercial clean vehicles under Section 45W.
The Department of Energy maintains an online list of eligible vehicles under Sections 30D and 25E. The ability to transfer credits to a dealer for an immediate rebate is available for both credits. Buyers must provide the dealer with extensive information, including a taxpayer identification number and attestations of how the vehicle will be used. Dealers must also provide buyers with extensive information on the credit, including the adjusted gross income limits.
The final regulations generally do not provide any guidance on the Section 45W credit. Section 45W offers a credit of 30% of the cost of an electric vehicle (15% if the vehicle is also powered by gas or diesel) capped at the lesser of the incremental cost of the vehicle over the purchase price of a comparable gas or diesel vehicle or $7,500 for vehicles under 14,000 pounds or $40,000 for vehicles above 14,000 pounds. Unlike the Section 30D credit, Section 45W does not have any final assembly or battery and mineral sourcing requirements. The IRS has not published any list of highway vehicles or mobile machinery qualifying for the Section 45W credit, only qualifying manufacturers.
The preamble to the final regulations described several comments asking that the Section 45W credit be disallowed for leased vehicles. Because the Section 45W credit isn’t restricted by final assembly or mineral or battery sourcing, some carmakers and dealers often lease EVs that do not qualify under Section 30D to customers and claim the Section 45W credit themselves. The IRS declined to provide any specific restrictions on leasing, and the preamble stated that whether a lease will be respected will be determined under existing rules. The IRS offered some basic information on how the determination of tax ownership is typically made in an earlier FAQ.
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