The Internal Revenue Service (IRS) and the US Department of the Treasury released additional information on the clean vehicle provisions of the Inflation Reduction Act on March 31, 2023. The information provides further clarity to consumers and businesses on the New Clean Vehicle Credit, the Previously-Owned Clean Vehicle Credit, and the Qualified Commercial Clean Vehicles Credit.
In our previous post, “Understanding the Inflation Reduction Act’s Electric Vehicle Tax Credits,” we highlighted the key eligibility requirements for the updated New Clean Vehicle Credit and Previously-Owned Clean Vehicle Credit introduced by the Inflation Reduction Act.
New Clean Vehicle Credit
The New Clean Vehicle Credit was designed to be implemented in different phases. The first phase began on August 16, 2022, when the Inflation Reduction Act became law, and ended on December 31, 2022. Only the North American final assembly requirement was imposed during the first phase. The tax credit program remained unchanged otherwise.
The second phase began on January 1, 2023. The IRS and US Department of the Treasury released consumer FAQs on the clean vehicle tax credits to clarify the current rules. The most significant changes to the credit for vehicles delivered on or after January 1, 2023, include the following:
- The minimum battery capacity is increased to 7 kilowatt-hours.
- Vehicles must be made by a qualified manufacturer. The list of qualified manufacturers can be accessed on the IRS website.
- Manufacturer suggested retail price (MSRP) limitations apply based on the type of vehicle.
- Income limits apply to taxpayers. Refer to our previous post for more details on MSRP and income limits.
- The phase-out period that limited or eliminated the credit for vehicles sold by certain manufacturers that had sold more than 200,000 vehicles ends.
The US Department of the Treasury and the IRS released a notice of proposed rulemaking on the critical minerals and battery components requirements. The notice of proposed rulemaking builds on the anticipated approach detailed in a white paperreleased in December. It explains how manufacturers may satisfy the critical mineral and battery component requirements under the Inflation Reduction Act.
For vehicles sold after April 17, 2023, the credit amount will depend on whether the vehicle’s battery meets the critical mineral requirement ($3,750) and a battery component requirement ($3,750). The maximum credit per vehicle will be $7,500 for vehicles that meet both criteria.
Pre-Owned Clean Vehicle Tax Credit
The FAQs released by the IRS provide clarity on the eligibility rules and the income and price limitations for the Pre-Owned Clean Vehicle Tax Credit, which we covered in our previous post. Qualified buyers can receive up to $4,000 on purchases of eligible pre-owned clean vehicles. Eligible pre-owned clean vehicles can only be bought from dealerships and must meet the following requirements:
- The vehicle must be at least two years old at the time of purchase.
- The vehicle must have been purchased for $25,000 or less.
- The gross vehicle weight rating must be less than 14,000 pounds.
Additionally, there are a few requirements the purchaser must meet:
- The purchaser cannot be the original user of the vehicle. Original use occurs the first time an individual or business places a vehicle in service for personal or business purposes.
- The purchaser must be the first person claiming the Pre-Owned Clean Vehicle Credit on the vehicle.
- The purchaser must have an adjusted gross income below the following income thresholds:
- $150,000 for joint filers
- $112,500 for head-of-household filers
- $75,000 for all other filers
Once a taxpayer uses the Previously-Owned Clean Vehicle Credit, they cannot do so again for three years.
Qualified Commercial Clean Vehicles Credit
The Inflation Reduction Act also introduced a tax credit for qualifying on-street commercial clean vehicles acquired after December 31, 2022, and before January 1, 2033. The qualified commercial clean vehicle must be used for business use. Only vehicles made by qualified manufacturers who have written agreements with and provide periodic reports to the US Department of the Treasury can qualify. Additional information about qualifying vehicles is available on the IRS website.
The credit amount depends on the size of the battery and gross vehicle weight rating, as shown in the table below.
| Gross vehicle weight rating | Minimum required battery size | Maximum credit amount |
| 14,000 pounds and above | 15 kilowatt-hours | $40,000 |
| Below 14,000 pounds | 7 kilowatt-hours | $7,500 |
The taxpayer calculates the amount of the tax credit by picking the lesser of the following two factors:
- 30 percent of the fully electric or fuel cell vehicle’s value (15 percent for vehicles that include gasoline or diesel engines in addition to electric or fuel cell propulsion)
- The incremental cost of the clean vehicle over the cost of a comparable vehicle powered solely by gasoline or diesel
According to additional guidance from the IRS and US Department of the Treasury, taxpayers can use the following incremental costs to calculate the credit amount for 2023. Incremental cost analysis and amounts are further detailed in the 2022 Incremental Purchase Cost Methodology and Results for Clean Vehicles report.
| Vehicle type | Incremental cost |
| Compact plug-in hybrid electric vehicle | $7,000 |
| Vehicles with a GVWR (gross vehicle weight rating)of 14,000 pounds or more | $28,000 to $297,500, depending on fuel type and vehicle class |
| Vehicles with a GVWR (gross vehicle weight rating) of less than 14,000 pounds | $7,500 |
Keep informed
We will continue to monitor guidance from the IRS, US Department of the Treasury, and US Department of Energy regarding the clean vehicle provisions of the Inflation Reduction Act. Subscribe to our monthly GPI newsletter so that you can stay informed as new information becomes available.
