Tax Matters: The Clean Vehicle Credit

To reduce carbon emissions and invest in the energy security of the United States, the Inflation Reduction Act of 2022 significantly changes the eligibility rules for tax credits available for clean vehicles beginning in 2023.

Thinking of buying a new car that would qualify for the Clean Vehicle Credit? If so, make sure you know the rules put forth by the Internal Revenue Service and the Department of the Treasury. Because there are a lot of them.

Taken directly from the IRS website:

New final assembly requirement

If you are interested in claiming the tax credit available under section 30D (EV credit) for purchasing a new electric vehicle after Aug. 16, 2022 (which is the date that the Inflation Reduction Act of 2022 was enacted), a tax credit is generally available only for qualifying electric vehicles for which final assembly occurred in North America (final assembly requirement).

The Department of Energy has provided a list of Model Year 2022 and early Model Year 2023 electric vehicles that may meet the final assembly requirement. Because some models are built in multiple locations, there may be vehicles on the Department of Energy list that do not meet the final assembly requirement in all circumstances.

To identify the manufacture location for a specific vehicle, please search the vehicle identification number (VIN) of the vehicle on the VIN Decoder website for the National Highway Traffic Safety Administration (NHTSA). The website, including instructions, can be found at VIN Decoder (nhtsa.gov/vin-decoder).

Transition rule for vehicles purchased before Aug. 16, 2022

If you entered into a written binding contract to purchase a new qualifying electric vehicle before Aug. 16, 2022, but do not take possession of the vehicle until on or after Aug. 16, 2022 (for example, because the vehicle has not been delivered), you may claim the EV credit based on the rules that were in effect before Aug. 16, 2022. The final assembly requirement does not apply before Aug. 16, 2022.

Vehicles purchased and delivered between Aug. 16, 2022 and Dec. 31, 2022

If you purchase and take possession of a qualifying electric vehicle after Aug.16, 2022 and before Jan. 1, 2023, aside from the final assembly requirement, the rules in effect before the enactment of the Inflation Reduction Act for the EV credit apply (including those involving the manufacturing caps on vehicles sold). If you entered into a written binding contract to purchase a new qualifying vehicle before Aug. 16, 2022, see the rule above.

What is a written binding contract?

In general, a written contract is binding if it is enforceable under State law and does not limit damages to a specified amount (for example, by use of a liquidated damages provision or the forfeiture of a deposit). While the enforceability of a contract under State law is a facts-and-circumstances determination to be made under relevant State law, if a customer has made a significant non-refundable deposit or down payment, it is an indication of a binding contract. For tax purposes in general, a contract provision that limits damages to an amount equal to at least 5% of the total contract price is not treated as limiting damages to a specified amount.

For example, if a customer has made a non-refundable deposit or down payment of 5% of the total contract price, it is an indication of a binding contract. A contract is binding even if subject to a condition, as long as the condition is not within the control of either party. A contract will continue to be binding if the parties make insubstantial changes in its terms and conditions.

Models that may meet final assembly requirement