Treasury Releases Guidance on Consumer EV Credit Provisions

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On August 16, 2022, the Department of Treasury released initial guidance on the electric vehicle (EV) tax credits for individuals that were modified by the recently enacted Inflation Reduction Act (IRA). The guidance includes updated information on the final assembly requirement, an FAQ on the IRA’s initial changes to the current EV tax credit, and a list of vehicles that meet the final assembly requirement.

Updated Information on Consumer Electric Vehicle Credit

The IRA requires a qualifying EV purchased after August 16, 2022, to have its final assembly process completed in North America in order for a consumer to claim the EV tax credit. To clarify which vehicles qualify under such provision, the Department of Energy provided a list of EVs which meet the final assembly requirement.

If a consumer purchased an EV prior to August 16, 2022, but does not take possession of such EV until after August 16, 2022, the consumer may claim the EV credit established on the rules that were in effect prior to August 16, 2022. The rules established before passage of the IRA do not apply the final assembly requirement.

If a consumer purchases and is in possession of an EV between August 16, 2022, and December 31, 2022, the rules prior to the enactment of the IRA are applied with the exception of the final assembly requirement. Rules prior to the enactment of the IRA include the manufacturing cap on vehicles sold.

The Treasury Department and Internal Revenue Service (IRS) will post information and request comments from the public on various existing and new tax credit incentives in the coming months.

List of Vehicles with Final Assembly in North America

Below is a list of qualified EVs that meet the North America final assembly requirement.

Model Year

Vehicle

Note

2022

Audi Q5

2022

BMW 3-series Plug-In

2022

BMW X5

2022

Chevrolet Bolt EUV

Manufacturer sales cap met until January 1, 2023

2022

Chevrolet Bolt EV

Manufacturer sales cap met until January 1, 2023

2022

Chrysler Pacifica PHEV

2022

Ford Escape PHEV

2022

Ford F Series

2022

Ford Mustang MACH E

2022

Ford Transit Van

2022

GMC Hummer Pickup

Manufacturer sales cap met until January 1, 2023

2022

GMC Hummer SUV

Manufacturer sales cap met until January 1, 2023

2022

Jeep Grand Cherokee PHEV

2022

Jeep Wrangler PHEV

2022

Lincoln Aviator PHEV

2022

Lincoln Corsair Plug-in

2022

Lucid Air

2022

Nissan Leaf

2022

Rivian EDV

2022

Rivian R1S

2022

Rivian R1T

2022

Tesla Model 3

Manufacturer sales cap met until January 1, 2023

2022

Tesla Model S

Manufacturer sales cap met until January 1, 2023

2022

Tesla Model X

Manufacturer sales cap met until January 1, 2023

2022

Tesla Model Y

Manufacturer sales cap met until January 1, 2023

2022

Volvo S60

2023

BMW 3-series Plug-In

2023

Bolt EV

Manufacturer sales cap met until January 1, 2023

2023

Cadillac Lyriq

Manufacturer sales cap met until January 1, 2023

2023

Mercedes EQS

2023

Nissan Leaf

Note: Qualified EVs must also meet additional considerations to be eligible for the consumer EV tax credit not considered in the chart above: Additional considerations include:

  • Vehicle MSRP cap:
    • Van: $80,000
    • Sports Utility Vehicle: $80,000
    • Pickup Truck: $80,000
    • All other vehicles: $55,000
  • Consumer adjusted gross income cap:
    • Married couples filing jointly: $300,000
    • Head of household filers: $225,000
    • Other filers: $150,000

FAQ on the Inflation Reduction Acts Changes to EV Tax Credit

The Treasury Department released a list of FAQs of changes made under the IRA to the EV tax credit. Below is a summary of such FAQs:

Q: How does the IRA modify the existing tax credit for new EVs?

Upon enactment of the IRA, the tax credit is only available for qualifying EVs for which final assembly occurred in North America.

Starting in 2023, the IRA establishes tax credits for pre-owned clean vehicles and for commercial clean vehicles. The Treasury Department and IRS will release more information in the coming months.

Q: Now that the President has signed the Inflation Reduction Act into law, the North America final assembly requirement will enter into force after August 16, 2022. How do I know if an electric vehicle’s final assembly occurred in North America? 

Dealers and consumers can use a two-step process to check an EV’s final assembly requirement eligibility.

The two-step process includes confirming with the list of eligible vehicles released by the Department of Energy and by entering the vehicles vehicle identification number into the National Traffic Safety Administration’s tool to confirm the final assembly location.

Q: How do I claim this credit?

Consumers that purchase a qualifying EV can continue to claim the tax credit on their annual tax filing. Beginning in 2024, the IRA allows car buyers to transfer the credit to dealers at the point of sale so that it can directly reduce the purchase price. 

Q: If I signed a contract to purchase an electric vehicle prior to enactment of the Inflation Reduction Act (before August 16, 2022) but have not yet taken possession of the vehicle, will the changes in the Inflation Reduction Act impact my tax credit?

If a consumer entered into a contract to purchase a qualifying EV before August 16, 2022, the changes in the IRA will not impact your tax credit. You may claim the credit based on the rules that were in effect prior to August 16, 2022.

Q: What if I purchase and take possession of a qualifying electric vehicle after August 16, 2022, but before the end of 2022?

The only change to the existing EV credit that takes effect after August 16, 2022, and before the end of 2022 is the North America final assembly requirement. Otherwise, the rules in effect before the enactment of the IRA for the EV credit remain in effect, including the phase-out for manufacturers that have sold over 200,000 vehicles.

Q: Where can I find out more about the other changes taking effect starting next year?

The Treasury Department and IRS will post information and request comments from the public on current and future changes to EV tax credits in the coming weeks and months. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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