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A new proposal from the U.S. Treasury Department would make it easier for consumers to get tax credits when buying new or used electric vehicles, tax and energy experts say.
its proposed rules, release On Friday, starting Jan. 1, 2024, auto dealers will offer electric vehicle tax credits to consumers at the point of sale, regardless of their federal tax liability.
What this means: Experts say all eligible EV buyers — not just a select group of eligible, often wealthier consumers — will get up to $7,500 in downpayment rebates on new cars and up to $7,500 on used cars. Up to $4,000 in prepayment discounts.
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“I think being able to get rebates at the point of sale is a real game changer for all consumers,” said Jamie Wickett, a partner at Hogan Lovells who specializes in federal tax policy and energy. Wickett said. “A vehicle worth $50,000 instantly became $42,500.”
Big news for low- and moderate-income drivers
As it stands, buyers only qualify for the full tax break if their federal tax liability is large enough. Otherwise, they may have their credit limit reduced or not get any credit at all. (That’s because the credit is “non-refundable.”)
If the Treasury Department’s proposal is codified, it would expand the group of consumers eligible to receive the full value of the electric vehicle tax credit, especially low-income earners who typically have smaller tax liabilities.
“This is good news, especially from an equity perspective for people who may not have as much disposable income,” said Ingrid Malmgren, policy director at the nonprofit Plug In America. Malmgren said. “It will really make it more affordable for them (to buy an electric vehicle).”
They will also receive a tax break as an upfront discount. Currently, buyers must wait until they file their annual tax return to receive the financial benefits of the tax credit — which could be a year or more after purchase.
Consumers can receive point-of-sale discounts by transferring tax credits—new clean vehicle credit ($7,500) or used clean vehicle credit ($4,000)—to car dealers. The car dealer can then pass the credit back to the consumer. The Treasury Department said the IRS expects to refund the money to dealers within 72 hours.
The Treasury Department said dealers must offer consumers the full credit amount available for the vehicle and provide written confirmation of the amount and vehicle eligibility. This amount is not included in the taxpayer’s gross income.
The agency’s proposal comes as it becomes increasingly difficult for many electric vehicle models to qualify for the full $7,500 credit, at least temporarily, due to manufacturing requirements included in the Inflation Reduction Act.
Consumers must self-certify eligibility
There are some caveats.
First, the Ministry of Finance proposal There is a 60-day public comment period and the final version may change, but experts do not anticipate any substantive revisions.
Additionally, not all dealers are guaranteed to participate. They must register through IRS Energy Credit Online, a new website. Wickert expects most dealers to do this or risk “real competitive disadvantage.”
The buyer must also file an income tax return for the year in which the vehicle transfer election is made.
It’s also important to note that under the Treasury Department’s proposal, car dealers would not analyze a consumer’s income to determine whether they qualify for the EV credit. Buyers must self-certify their eligibility, and making a mistake could mean refunding the full value of the credit to the IRS at tax time.
I think being able to get rebates at the point of sale is a real game changer for all consumers.
Jamie Wickett
Partner, Hogan Lovells
Treasury said people can self-certify their eligibility if their expected income in the year the vehicle is “put into service” is below their respective income thresholds. They can also do this based on the previous year’s income.
“It’s better to know whether you were eligible last year (based on income) or to be very confident that you were eligible the year you purchased the car,” Malmgren said.
Here are the annual income limits for the $7,500 new car deduction: $300,000 for married couples filing joint returns; $225,000 for heads of household; $150,000 for single taxpayers.
These limits apply to the $4,000 used car credit: $150,000 for married couples filing a joint return; $112,500 for heads of household; and $75,000 for single taxpayers.
These figures are based on “modified adjusted gross revenue.”
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