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Key Takeaways
- The IRS’ new reporting requirements for clean vehicle sellers and manufacturers began in January 2023.
- Effective January 1, 2024, the clean vehicle credit can be transferred directly to dealerships for either a cash payment, as a partial payment, or down payment for the purchase of the vehicle. While it is the manufacturer’s responsibility to determine a vehicle’s eligibility, dealerships must be aware of their reporting requirements.
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) released Revenue Procedure 2022-42, providing new reporting requirements for clean vehicle sellers and manufacturers. These reporting requirements began in January 2023.
What are the Reporting Requirements for Dealerships?
Qualifying sellers have two 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)
- 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.
- 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.”
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 claim the credit fully.
After December 31, 2023, taxpayers can transfer the credit directly to the seller at the time of sale. This transfer program will allow taxpayers to receive the benefit immediately and utilize the credit regardless of their annual tax obligation.
Summary of the New Clean Vehicle and Previously Owned Clean Vehicle Credit
| New Vehicle- 2022 |
New Vehicle- 2022 |
New Vehicle- 2023 |
Used Vehicle- 2023 |
|
|---|---|---|---|---|
| Dates | Before Aug 16, 2022 | Aug 16, 2022 – Dec 31, 2022 |
Jan 1, 2023 | Jan 1, 2023 |
| Max Credit Amount | $7,500 |
$7,500 |
$7,500 |
$4,000 or 30% of sales price |
| Critical Minerals | Not Required | Not Required | 2023: 40% of the value | Not Required |
| Battery 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 |
Sales 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 delivered Aug 16 - Dec 31, 2022. | Only change North America assembly requirement. Delivery must be by 12/31/2022. |
Critical mineral and battery component requirements increase annually. | 2 year old vehicle, second owner.
Purchased from a dealer. Applicable every 3 years. |
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 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 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 with 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 the manufacturer is responsible for determining 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.
An experienced advisor can answer your questions and ensure you don’t leave money on the table by not claiming what you qualify for. If you need help managing your energy efficiency credits to remain compliant and increase cash flow – Eide Bailly’s energy efficiency specialists can help.
