The Inflation Reduction Act (IRA) made significant changes to the federal income tax credits available for the purchase of new clean vehicles and previously-owned clean vehicles.
The Internal Revenue Service (IRS) recently released Revenue Procedure 2022-42 providing new reporting requirements for clean vehicle sellers and manufacturers. These reporting requirements begin January 2023.
What are the new reporting requirements for dealerships?
Qualifying sellers have two new reporting requirements when selling new and used clean vehicles. A seller is defined as a dealer licensed with the appropriate jurisdiction to engage in the sale of vehicles.
- Dealers must provide a seller’s report to the buyer at the time of sale.
- Dealers must annually compile all the reports they provided to buyers during the calendar year and submit the reports to the IRS. These reports are due within 15 days after calendar year-end, meaning the first report is due to the IRS on January 15, 2024.
A seller’s report must include:
- The name and taxpayer identification number of the seller
- The name and taxpayer identification number of the taxpayer
- The vehicle’s identification number (VIN)
- The battery capacity of the vehicle
- Qualifying new clean vehicles must include verification that the vehicle’s original use began with the taxpayer
- The date of sale, sale price of the vehicle and maximum credit allowed based on the credit criteria (to be determined by the manufacturer)
- A declaration signed by a person currently authorized to bind the Seller in these matters, in the following form:
“Under penalties of perjury, I declare that I have examined this report submitted to the IRS pursuant to Revenue Procedure 2022-42 by [insert name of Seller], and to the best of my knowledge and belief I certify that this report is true, correct, and complete.” - For sales after December 31, 2023, if the taxpayer elects to transfer the credit to the dealer, the amount paid or allocable as partial payment to the dealer at the time of sale.
Both credits are non-refundable and unused amounts are not eligible for carryforward to the next tax year. This requires the taxpayer to have sufficient federal income tax obligations in the year of purchase to fully claim the credit.
After December 31, 2023, taxpayers will have the option to transfer the credit directly to the seller at the time of sale. This transfer program will allow taxpayers to receive the benefit immediately and allow them to utilize the credit regardless of their annual tax obligation.
Summary of the New Clean Vehicle and Previously-Owned Clean Vehicle credit for 2022 and 2023
| NEW VEHICLE (2022) | NEW VEHICLE (2022) | NEW VEHICLE (2023) | USED VEHICLE (2023) | |
|---|---|---|---|---|
| DATES | Before August 16, 2022 | August 16, 2022 - December 31, 2022 | January 1, 2023 | January 1, 2023 |
| MAXIMUM CREDIT AMOUNT | $7,500 | $7,500 | $7,500 | $4,000 |
| CRITICAL MINERALS | NOT REQUIRED | NOT REQUIRED | 2023: 40% of the value | NOT REQUIRED |
| BATTER COMPONENTS | NOT REQUIRED | NOT REQUIRED | 2023: 50% of the value | NOT REQUIRED |
| NORTH AMERICA ASSEMBLY | NOT REQUIRED | REQUIRED | REQUIRED | NOT REQUIRED |
| MAGI LIMITS | NONE | NONE | Single $150,000 ~ HOH $225,000 ~ MFJ $300,000 | Single $75,000 ~ HOH $112,500 ~ MFJ $150,000 |
| MSRP LIMIT | NONE | NONE | Sedans $55,000 Pickups, vans, SUVs $80,000 | $4,000 or 30% of sales price, price not to exceed $25,000 |
| SALE VOLUME CAP | NO TESLA AND GM | NO TESLA AND GM | NO CAP | NO CAP |
| OTHER CONSIDERATIONS | • Written binding contract if delivery August 16 – December 31, 2022 | • No change other than North America assembly requirement • Delivery by 12/31/2022 |
• Critical mineral and battery component requirements increase annually | • 2-year old vehicle, second owner • Purchased from a dealer • Applicable every 3yrs |
Applicable critical minerals must come from the United States or a country with a free-trade agreement with the United States:
- 40% of the value in 2023
- 50% of the value in 2024
- 60% of the value in 2025
- 70% of the value in 2026
- 80% of the value after 2026 through 2032
Applicable battery components must be manufactured or assembled in North America.
- 60% of the value in 2024 and 2025
- 70% of the value in 2026
- 80% of the value in 2027
- 90% of the value in 2028
- 100% of the value after 2028 through 2032
What are the new reporting requirements for manufacturers?
To become a qualified manufacturer of clean vehicles, manufacturers also have a new reporting requirement. Manufacturers must submit a written statement and periodic reports with specific vehicle information to the IRS.
In addition to vehicle information, manufacturers must also certify that their vehicles meet the criteria of each credit. The responsibility to determine if a vehicle is eligible for the credit falls on the manufacturer. Revenue Procedure 2022-42 did not provide manufacturers with the guidance on the new critical mineral and battery requirements for the New Clean Vehicle Credit.
Do dealerships have other reporting requirements?
Dealers selling new clean vehicles to governments and tax-exempt entities may continue to be treated as the vehicle’s first owner and retain the credit. If the dealer retains the credit, the dealer must provide the buyer a written disclosure including the amount of credit retained.
What is the next step for dealerships?
Taxpayers and sellers may rely on the manufacturer’s certification when determining if a vehicle is eligible for a clean vehicle credit. Although it is the manufacturer’s responsibility to determine a vehicle’s eligibility, dealerships must be aware of their reporting requirements and evaluate procedures necessary to capture relevant clean vehicle sale information.
- Beginning January 1, 2023, dealerships must provide applicable vehicle information to taxpayers at the time of sale. The same reports must be compiled and submitted to the IRS 15 days after calendar year-end.
Our dealership advisors can help you manage energy efficiency credits to remain compliant and increase your cash flow.