IRS Issues Guidance on Claiming Electric Vehicle Credits at the Dealership
By Kelly Yim, Director, Tax & Business Services
Starting in 2023, taxpayers who buy a new electric vehicle (“EV”) are allowed a New Clean Vehicle credit of up to $7,500. Taxpayers who are interested in purchasing a used EV instead may qualify for the Previously Used Vehicle credit, which equals to the lesser of:
- $4,000; or
- 30% of the sale price
Both the New Clean Vehicle Credit and the Previously Used Vehicle Credit are nonrefundable personal credits, meaning the taxpayer needs to have a federal tax liability on their personal tax return to get the benefit. To get the full tax benefit of the credit, the taxpayer must have a federal tax liability of at least the credit amount. Any credit not used cannot be refunded or carried forward. In addition, you must wait until you file your tax return to get the benefit – that could be 15 months or more after buying the car.
Alternatively, taxpayers may transfer the vehicle credits to a qualified car dealer in exchange for a rebate (equal to the credit amount) at the time of purchase. By moving the credit to the dealer, the dealer can immediately lower the vehicle’s sale price or rebate the cash to the buyer. The dealers then request and receive payments from the government through an advance payment program. The transfer option is elective to taxpayers and available for EVs purchased after December 31, 2023.
Here are the highlights of the proposed IRS rules released last week:
For Taxpayers (buyers)
- make the election to transfer the credit no later than the time of sale
- transfer the entire amount of the allowable credit to the registered dealer
- attest to being under the eligible income threshold
- cannot make more than two transfer elections per taxable year
For Car Manufacturers, Sellers, and Dealers
To participate in the program, car manufacturers, sellers, and dealers must all register through the IRS Energy Credits Online Portal (“Portal”). The IRS will confirm the information. If the IRS accepts the registration, it will issue a unique identification number to the dealer. If the IRS rejects the registration, the dealer may request an administrative review.
Manufacturers can no longer email their signed written agreements and monthly reports to [email protected]. Instead, they must file these documents through the Portal by the fifteenth of the month.
The original due date to file the seller report with the IRS was within fifteen days of the end of the calendar year in which the sale occurs. This deadline has been changed to within three calendar days of the date of purchase, and the seller report must be submitted through the Portal. A copy of the seller report and the submission confirmation number must be provided to the buyer within three calendar days of submitting the report through the Portal.
To receive advance payments for each taxpayer’s transfer election, the registered dealer must provide the vehicle’s VIN, the seller report, and the mandatory taxpayer disclosure information through the Portal at the time of sale. The dealer’s registration may be revoked if the dealer fails to comply with this requirement.
Record Keeping by all Parties
Both sellers and dealers must retain information related to the vehicle sale and credit transfer for at least three years.
Marcum will continue to monitor new releases or guidance on this topic. For more information on how to participate in the advance payment program, contact Marcum today.