IRS Guidance – Transfer of Clean Energy Vehicle Credits

The Inflation Reduction Act, which was signed into law on August 16, 2022, includes several provisions designed to help fight the high level of inflation. The purpose was to help meet national climate goals, strengthen energy security, invest in the creation of good paying jobs, and to reduce the costs of energy and healthcare for families. It is filled with dozens of provisions and includes 24 new tax incentives designed to accelerate the deployment of clean energy vehicles, buildings, and manufacturing. This includes both the Used Clean Vehicle and New Clean Vehicle Tax Credits.

The credits incentivize the purchase of clean energy vehicles. However, it can only be claimed by submitting IRS Form 8936 with an annual income tax return. Starting next year, consumers can transfer these credits to car dealers at the time of sale. To provide essential details, the IRS recently issued proposed regulations governing transfers. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

Regulation Overview

As outlined in the Inflation Reduction Act, consumers can elect to transfer a new clean vehicle credit ($7,500 maximum) or used clean vehicle credit ($4,000 maximum) to a car dealership starting in January 2024. The proposed regulations provide details on registration requirements, how the transfer will work for car dealers, and proposed eligibility rules for the used clean vehicle credit to provide additional certainty. It also asserts that the full value of the credit can be used regardless of an individual’s tax liability.

Dealer Requirements

For vehicles purchased in 2024, a taxpayer will be able to claim credits and transfer them only if the dealer has registered with the IRS and submit a seller’s report through the IRS Energy Credits Online. A seller report must be submitted when the transaction is completed, and copies provided to the buyer. Concurrently, the buyer must provide a Taxpayer Identification Number and valid ID to be included in the report. It is important to note the IRS will not accept a report for automobiles that have VIN that was not reported by the manufacturer as eligible.

A separate registration is required for a dealership to participate in the advance payment program. A dealer must maintain compliance with tax laws, this includes being current on federal tax returns, and have no outstanding tax liabilities.  It is expected that credit payments will be issued to eligible dealers within 48 to 72 hours of sales report submission. 

Tax Treatment Details

The financial value of the payment made by the dealer against the total sale price is not reported as gross income by the buyer. As expected, the payment is treated as an advance against the total value of the credit. The proposed regulations require the vehicle purchase price to be reduced by the exact amount of the credit.  For dealerships, the received advance payments are not included in gross income. In addition, any payment made to the buyer in exchange for the credit cannot be deducted.

Contact Us

The recently issued proposed regulations provide important guidance for both taxpayers and dealerships on how the transfer of these credits will work. Since these are only proposed regulations, it is important to note there may be changes when the final version is published. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.