The IRS just released new proposed regulations that add an alluring wrinkle to the tax credit offered on electric vehicle (EV) purchases.
Under the Inflation Reduction Act, passed last year by the Biden Administration, qualified EV buyers are eligible for a sizeable income tax credit. But now, according to a new IRS proposal outlined in a recent document release, EV buyers have the option to transfer their clean vehicle credit to a registered car dealer.
If you’re not familiar with this program, some buyers are potentially eligible for credit for income tax credits on new and previously owned EV purchases.
This proposal, if approved, will ultimately reduce the price of an electric vehicle by the amount of the credit. Of course, whether you qualify for the credit and its total amount depends on your tax bracket.
The IRS’s intention with this proposal is to attract potential EV buyers with lower tax liabilities. Even if you don’t need the deduction, the credit can help reduce the price of an electric vehicle, which is a huge benefit, considering EVs are generally more expensive than gas-powered automobiles.
Here’s a brief overview of how the EV transfer credit works and related eligibility factors.
Electric Vehicle Tax Credit Overview
When you purchase an electric vehicle, you may be eligible for a tax credit of up to $7,500 on a new EV and up to $4,000 on a previously owned EV.
Your eligibility depends on your income bracket. And the EV credit is nonrefundable, meaning you can subtract that amount from your taxable income, but you’re not entitled to a refund — Only a reduction on your bill if you owe on your income taxes.
Also, credits on used electric vehicle purchases can be no more than 30% of the sale price, and you can only claim one credit per vehicle.
Electric Vehicle Tax Credit Transfer Option
In a previous update, I explained how your income bracket determines your eligibility for a tax credit that can lower your income tax bill when you purchase an electric vehicle.
But as of January 1, 2024, you will likely also have the option to transfer your clean vehicle credit to the dealership where you plan to make your purchase. And under the terms of this transfer, the dealerships can either lower the purchase price by the credit amount or issue you a cash refund.
Participation in the transfer program requires the dealer to register with Energy Credits Online. This system, in turn, allows the dealer to verify the eligibility for the vehicle you aim to purchase.
As the EV buyer, however, you are responsible for determining whether you’re eligible for the credit according to your income bracket. And if you don’t meet the requirements but still accept the credit, the IRS will demand repayment in full when you file your income tax return.
It’s also important to note this proposal has yet to be officially adopted. The program documentation is open for “public comment” before final ratification.
Considering Taking Advantage of the EV Transfer Credit?
If you’re in the market for an electric vehicle and could benefit from a discount on the purchase price, the transfer credit is a great option.
Of course, the tricky part is sorting out your income bracket and determining if you qualify.
If you’re wondering where you stand on this front — Get in touch for your FREE consultation!