In addition to providing clarity regarding eligibility requirements for the New Clean Vehicle Credit and the Previously-Owned Clean Vehicle Credit, the IRS has issued guidance as to how a taxpayer can transfer the credit to the dealer and receive an advanced vehicle credit. By transferring the credit to the dealer, the dealer can immediately lower the bottom-line price paid by the taxpayer to purchase the vehicle.
Highlights of this new guidance include:
- Required disclosures that both dealers and taxpayers must make at the point of sale in order to claim the advanced clean vehicle credit at the dealership starting January 1, 2024;
- Creation of recapture (repayment) rules for taxpayers who claim advanced clean vehicle credits at the dealership, but then don’t qualify for the credit when they file their income tax return;
- Creation of an exception to the recapture rules: If a taxpayer claims an advanced vehicle credit at the dealer, but then their tax liability is not high enough to use the entire credit, then there is no credit recapture;
- Creation of a new limitation that taxpayers can only claim two advanced clean vehicle credits per taxable year (in the case of a married couple, the limit is two vehicles each);
- AGI limitation rules for taxpayers whose filing status has changed from one year to the next;
- Simplified application of the Previously-Owned Clean Vehicle Credit’s first transfer rule;
- Defining “purchase price” when applying the $25,000 limitation on the purchase price of a previously owned clean vehicle;
- Rules for disallowing credits to taxpayers who claim an advanced clean vehicle credit at the dealership and then subsequently return or resell the vehicle within a short time thereafter; and
- Rules for dealers to register with the IRS (which is required for taxpayers to claim the clean vehicle credits and for dealers to offer advanced payments to vehicle buyers starting January 1, 2024). The IRS will be creating an IRS Energy Credits Online Portal for this purpose.
The guidance was issued in four formats:
- A press release (IR-2023-186) available at: www.irs.gov/newsroom/irs-issues-guidance-for-the-transfer-of-clean-vehicle-credits-and-updates-frequently-asked-questions
- Revenue Procedure 2023-33 available at: www.irs.gov/pub/irs-drop/rp-23-33.pdf
- 93 pages of proposed regulations (Prop. Treas. Regs. §§1.125E-1 through 1.125E-3 and 1.30D-5) available at: https://go.spidell.com/e/837113/2023-22353-pdf/5vztqq/1707740373?h=x12qOonGyR2Gd-p1zl5exjsD4ABHZmxxw_R4oNGLJ1g
- Updated FAQs available at: www.irs.gov/pub/taxpros/fs-2023-22.pdf
Sign up for Spidell’s 2023/24 Federal and California Tax Update and get more information on these rules, along with client planning opportunities. Click here for details.
Sign up for Spidell’s Flash E-mail — Get breaking news delivered to your inbox, plus other free analysis and information for tax professionals. Join our community and stay at the top of your game. Click here to sign up.