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Introduction of Final Regulations
The IRS has issued final regulations for new and previously owned clean vehicle credits. These regulations include rules on transferring credits to registered dealers at the point of sale and guidelines for dealers to become eligible for advance payments of transferred credits.
New Clean Vehicle Credit Requirements
The final regulations specify the critical mineral and battery component requirements for the new clean vehicle credit, adding a new test for mineral content. Under the Inflation Reduction Act of 2022, a maximum credit of $7,500 is allowed for a new clean vehicle, divided into $3,750 for meeting critical mineral requirements and $3,750 for battery component requirements. Additionally, the vehicle must meet certain price limits, and the taxpayer must meet income limitations.
Previously Owned Clean Vehicle Credit
The credit for previously owned clean vehicles is $4,000 for eligible vehicles with a sale price of $25,000 or less. The buyer must place the vehicle into service during the tax year and meet income limitations, and the vehicle must meet specified eligibility requirements.
Point-of-Sale Credit Transfers
Over 100,000 credits have been transferred at the point of sale this year, resulting in over $700 million in upfront savings for consumers. The final regulations detail how credits can be transferred to dealers and how dealers can receive advance payments.
FEOC Compliance Requirements
The regulations finalize rules for manufacturers to determine if vehicle battery components and critical minerals comply with Foreign Entity of Concern (FEOC) requirements. They provide definitions, impose due diligence requirements, describe compliance determination methods, and outline a reporting and review process.
New Mineral Content Test
The new traced qualifying value add test requires manufacturers to trace the supply chain to determine the value-added percentage for extraction, processing, and recycling. Manufacturers can use the 50% roll-up method until 2027. The IRS, with help from the Energy Department, will review sourcing documentation to ensure compliance, and no penalties will be imposed on taxpayers if manufacturers make mistakes in vehicle eligibility information.
HAVE QUESTIONS?
If you need assistance or have any questions on the information in this article, please call your CironeFriedberg professional. You can reach us by phone at (203) 798-2721 (Bethel), (203) 366-5876 (Shelton), or (203) 359-1100 (Darien) or email us at info@cironefriedberg.com.