Final regulations: Guidance on clean vehicle credits
Clean vehicle tax credits under sections 25E and 30D for the purchase of qualifying new and previously-owned clean vehicles
Guidance on clean vehicle credits
The U.S. Treasury Department and IRS released final regulations (T.D. 9995) regarding clean vehicle tax credits under sections 25E and 30D introduced by the “Inflation Reduction Act of 2022” (IRA)) for the purchase of qualifying new and previously-owned clean vehicles, including new and previously-owned plug-in electric vehicles powered by an electric battery meeting certain requirements and new qualified fuel cell motor vehicles.
The Treasury Department and IRS published proposed regulations (REG-120080-22) containing guidance under section 30D in April 2023 (read TaxNewsFlash), proposed regulations (REG-113064-23) containing guidance under sections 25E and 30D in October 2023 (read TaxNewsFlash), and proposed regulations (REG-113064-23) containing additional guidance under section 30D in December 2023 (read TaxNewsFlash). Today’s final regulations finalizes those proposed regulations with clarifying changes and additional modifications.
Like the proposed regulations, the final regulations provide guidance for:
- Taxpayers who purchase qualifying vehicles and intend to transfer the amount of any previously-owned clean vehicle credit or new clean vehicle credit to dealers that are entities eligible to receive advance payments of either credit
- Dealers to become eligible entities to receive advance payments of previously-owned clean vehicle credits or new clean vehicle credits
In addition, the final regulations provide rules for recapture of the credits and guidance on the meaning of three new definitions added to the exclusive list of mathematical or clerical errors relating to certain assessments of tax without a notice of deficiency.
As described in the related IRS release—IR-2024-131 (May 3, 2024)—the final regulations provide rules regarding the critical mineral and battery components requirements for the new clean vehicle credit and rules for qualified manufacturers of new clean vehicles to determine if the battery components and applicable critical minerals contained in a vehicle battery are foreign entity of concern (FEOC) compliant. For purposes of the FEOC-compliance requirements, the final regulations:
- Provide relevant definitions
- Impose a due diligence requirement for battery components and applicable critical minerals
- Describe the methods by which FEOC-compliance is determined
- Outline a reporting and review process for determinations of FEOC-compliance
The IRA allows a maximum credit of $7,500 per new clean vehicle, consisting of $3,750 in the case of a new vehicle that meets certain requirements relating to applicable critical minerals and $3,750 in the case of a new vehicle that meets certain requirements relating to battery components.
In addition to the critical minerals and battery components requirements and FEOC-compliance requirements, to qualify for the new clean vehicle credit, the vehicle must meet certain requirements, including satisfaction of an MSRP limitation, and the taxpayer claiming the credit must meet certain requirements, including income limitations.
The previously-owned clean vehicle credit is a credit of up to $4,000 for the purchase of an eligible previously owned clean vehicle with a sale price of $25,000 or less that is placed in service during a tax year by a qualified buyer. To claim the credit, a qualified buyer must meet certain income limitations and the vehicle must meet specified eligibility requirements.
The final regulations are effective on July 5, 2024.
Read a related Treasury release
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