Clean Vehicle Tax Credit Transfers to Car Dealers

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Updated December 2, 2024

Clean Vehicle Tax Credit Transfers to Car Dealers

In May 2024, the Internal Revenue Service (IRS) issued final regulations for transfers of clean vehicle tax credits from consumers to car dealers. The regulations apply to the clean vehicle credit (CVC) and the used clean vehicle credit (UCVC), both of whichClean Vehicle Tax Credit Transfers to Car Dealers

In July 2025, Congress repealed the clean vehicle credit (CVC) and the used clean vehicle credit (UCVC) as part of the FY2025 reconciliation law (P.L. 119-21). These two credits were enacted under the Inflation Reduction Act of 2022 (P.L. 117-169), and final Internal Revenue Service (IRS) regulations were issued in May 2024. The final regulations were unusual in their treatment of tax credits that were transferred from consumers to car dealers. UnlikeP.L. 117-169). The regulations detail how transferred credits—unlike credits claimed when tax returns are filed—may exceedwere filed, transferred credits could exceed taxpayers' total income tax liabilities.

The Clean Vehicle Credit (CVC)

Taxpayers acquiring new electric vehicles and fuel cell vehicles maycould potentially qualify for a CVC. The credit is described in SectionSection 30D of the Internal Revenue Code (IRC). Eligible vehicles must have been acquired on or before September 30, 2025, and have undergone final assembly in North America. The credit amount was of the Internal Revenue Code (IRC). The Joint Committee on Taxation (JCT) projects that the CVC will reduce federal revenues by $19 billion between FY2023 and FY2027.

Eligible vehicles must be acquired before 2033 and have undergone final assembly in North America. Individuals and businesses may claim the credit for only one vehicle per year.

The credit amount is $3,750 for vehicles meeting the critical minerals requirement plus $3,750 for vehicles meeting the battery components requirement, for a maximum total credit of $7,500. To meet the former requirement, a car’'s battery (1) must meet or exceedhave met or exceeded a certain threshold percentage of critical minerals that were extracted or processed in the United States or in a country with which the United States has a free trade agreement, or (2) must have been recycled in North America. The threshold starts at 40% in 2023 and rises gradually to 80% in 2027 and subsequent yearswas 40% in 2023, 50% in 2024, and 60% in 2025. To meet the battery components requirement, a certain minimum share of a battery’'s component parts must behave been manufactured or assembled in North America. The share starts atwas 50% in 2023 and rises to 100% in 2029 and later yearsrose to 60% in 2024 and 2025. In addition, vehicles acquired after 2023 cannot usecould not qualify for the CVC if they used battery components manufactured or assembled by a foreign entity of concern (FEOC); for vehicles acquired after 2024, no applicable critical minerals in the vehicle’'s battery maycould come from an FEOC. According to final regulations from the IRS, FEOCs includeincluded companies operating in or significantly influenced by the governments of China, Russia, North Korea, or Iran.

To receive the credit, taxpayers must have had modified adjusted gross incomes (MAGIs) for either the current or previous year no greater than certain specified amounts: $300,000 for married couples, $225,000 for heads of household, and $150,000 for single filers and others. For purposes of the clean vehicle tax credits, MAGI iswas equivalent to adjusted gross income, excluding deductions for expatriates and residents of American territories. When

claimed on a taxpayer’'s income tax return, the credit iswas nonrefundable, meaning that credit amounts in excess of tax liability arewere not refunded to the taxpayer.

Under the IRA, the credit applied to vehicles acquired on or before December 31, 2032. This deadline was moved up to September 30, 2025, under the FY2025 reconciliation law.

The Used Clean Vehicle Credit (UCVC)

The UCVC, described in IRC SectionIRC Section 25E, provided, provides a tax credit for purchases of used electric or fuel cell vehicles. In 2022, the JCT projected that the credit would reduce federal revenues by $0.4 billion between FY2022 and FY2026.

To qualify for the UCVC, a vehicle must behave been purchased from a licensed dealer for $25,000 or less. The vehicle must be acquired no later than December 31, 2032, and the vehicle’s model year must be and must have been acquired by the taxpayer on or before September 30, 2025. In addition, the vehicle's model year must have been at least two years before the year of purchase. The credit maycould be claimed only once per vehicle.

The credit equalswas equal to 30% of the vehicle’'s sales price, up to a maximum credit of $4,000 (when the price exceedsexceeded $13,333). Because the UCVC cannotcould not be claimed for vehicles costing more than $25,000, the value of the credit fallsfell from $4,000 to $0 when a car’'s price risesrose from $25,000 to $25,001.

Individuals and couples arewere eligible for the credit; business entities arewere not. Taxpayers must purchasehave purchased vehicles for personal use, not for resale, and cannotcould not have claimed another UCVC in the previous three years. The taxpayers’' MAGIs for either the current or previous year must behave been no greater than certain specified amounts: $150,000 for married couples, $112,500 for heads of household, and $75,000 for single filers and others. When claimed on tax returns, credit amounts in excess of income tax liabilities cannotcould not be received as refunds.

As with the CVC, the UCVC originally applied to vehicles acquired on or before December 31, 2032. This deadline was changed to September 30, 2025, as part of the FY2025 reconciliation law.

Credit Transfers to Car Dealers and the Increased Value of Transferred Credits

Since Starting January 1, 2024, taxpayers have beenwere able to claim the CVC and the UCVC as rebates when purchasing their vehicles. To claim the credits as rebates, taxpayers must transferhave transferred the credit to the car dealer, whichwho then receivesreceived the credit from the government. Car dealers in turn must compensatecompensated taxpayers with either a cash payment or a reduced price on the car; the value of the cash payment or price reduction must equalhave equaled the value of the applicable credit. Buyers cannotwere not allowed to transfer partial credits. A 2022 survey found that prospective car buyers preferpreferred such point-of-sale rebates to traditional tax credits, with the immediacy of the rebates beingreported as an important factor for most consumers. The preference for rebates iswas strongest among low-income buyers, used- car buyers, and buyers of low-priced vehicles.

Taxpayers who transfertransferred a credit must still were still required to file Form 8936 with their income tax return and indicate that they claimed the CVC or the UCVC earlierUCVC in the tax year. Dealers mustwere required to inform taxpayers of the relevant MAGI limits, and

Clean Vehicle Tax Credit Transfers to Car Dealers

https://crsreports.congress.gov

taxpayers must attest that they expecttaxpayers must have stated that they expected to be eligible for the given credit. Taxpayers who transfertransferred a credit but exceedexceeded the MAGI limits mustwere required to pay back the credit to the IRS when filing their taxes.

For many taxpayers, the difference between a transferred credit and a credit received at tax time iswas a matter of convenience; the monetary value of the credit doesdid not change. However, for low-income taxpayers, one aspect of the proposed IRS regulations would significantly increaseincreased the value of the credits. Specifically, the regulations state stated that “"the credit amount under section 30D that the electing taxpayer elects to transfer ... may exceed the electing taxpayer’'s regular tax liability ... for the taxable year in which the sale occurs.”" This rule appliesapplied to the UCVC as well.

Because of the progressivity of the federal income tax, low- income taxpayers often have little to no income tax liability. Thus, they generally do not receive the full value of nonrefundable credits. By allowing transferred credits to exceed income tax liabilities, the IRS regulations would increaseincreased the CVC and the UCVC to their maximum value for all eligible taxpayers below the MAGI thresholds.

The regulations promulgated by the IRS significantly increaseincreased the value of the CVC and the UCVC for low- income taxpayers who transfertransferred the credits, as illustrated in Table 1 and Table 2. The total benefit to low-income households was also dependentalso depends on the extent to which they purchasepurchased qualifying vehicles and (in the case of the UCVC) the prices of the purchased vehicles.

Table 1. Clean Vehicle Credits (CVCs) for Married Couples Nonrefundable vs. transferred CVCscredits for example married couples, by adjusted gross income (AGI), tax year 2024

AGI

AGI

Nonrefundable

Credit

Credit

Transferred

Credit

Credit

Vehicle meeting both domestic content requirements

$20,000 $0 $7,500

$60,000 $3,233 $7,500

$125,000 $7,500 $7,500

$350,000 $0 $0

$20,000

$0

$7,500

$60,000

$3,233

$7,500

$125,000

$7,500

$7,500

$350,000

$0

$0

Vehicle meeting one of two domestic content requirements

$20,000 $0 $3,750

$60,000 $3,233 $3,750

$125,000 $3,750 $3,750

$350,000 $0 $0

Source: CRS calculations.

$20,000

$0

$3,750

$60,000

$3,233

$3,750

$125,000

$3,750

$3,750

$350,000

$0

$0

Source: CRS calculations.

Notes: Credit amounts are based on the assumptions that (1) couples claim the standard deduction and no other nonrefundable tax credits, (2) couples earning $350,000 in 2024 earned more than $300,000 in 2023, and (3) couples’' modified AGIs equal their AGIs.

Table 1 contrasts the values of transferred CVCs and nonrefundable CVCs for hypothetical married couples at different income levels. In these examples, a couple earning $20,000 per year would have had no income tax liability, so their nonrefundable CVC would behave been $0, whereas a transferred CVC would behave been $7,500 if both the critical minerals and battery components requirements arewere met. (If the vehicle meetsmet only one requirement, the transferred credit would behave been worth $3,750.) A married couple earning $95,558 would have had 2024 income tax liabilities of $7,500, so couples earning between $95,558 and $300,000 would receive the same amounts from transferred credits and nonrefundable credits. Couples making above $300,000 would not receivehave received the credit, as their incomes exceedexceeded the MAGI threshold.

Table 2 uses similar examples to contrast transferred UCVCs and nonrefundable UCVCs for married couples with different incomes. Since the UCVC iswas proportional to the cost of the purchased vehicle, different credit amounts are shown for both high- and low-cost vehicles. For a couple earning $20,000 and purchasing a qualifying used vehicle for $13,333 to $25,000, a transferred credit iswas worth $4,000, whereas a nonrefundable credit iswas worth $0. For couples earning between $66,392 and $150,000, both nonrefundable credits and transferred credits havehad a maximum potential value of $4,000 (based on the price of the vehicle). Couples purchasing lower-priced vehicles receivereceived smaller credits, and couples earning more than $150,000 cannotcould not receive the UCVC.

Table 2. Used Clean Vehicle Credits (UCVCs) for Married Couples Nonrefundable vs. transferred UCVCscredits for example married couples, by adjusted gross income (AGI), tax year 2024

AGI

AGI

Nonrefundable

Credit

Credit

Transferred

Credit

Credit

Used vehicle costing between $13,333 and $25,000

$20,000 $0 $4,000

$60,000 $3,233 $4,000

$125,000 $4,000 $4,000

$200,000 $0 $0

Used vehicle costing $8,000

$20,000 $0 $2,400

$60,000 $2,400 $2,400

$125,000 $2,400 $2,400

$200,000 $0 $0

Source: CRS calculations.

$20,000

$0

$4,000

$60,000

$3,233

$4,000

$125,000

$4,000

$4,000

$200,000

$0

$0

Used vehicle costing $8,000

$20,000

$0

$2,400

$60,000

$2,400

$2,400

$125,000

$2,400

$2,400

$200,000

$0

$0

Source: CRS calculations.

Notes: Credit amounts are based on the assumptions that (1) couples claim the standard deduction and no other nonrefundable credits, (2) couples earning $200,000 in 2024 earned more than $150,000 in 2023, and (3) couples’' modified AGIs equal their AGIs.

Nicholas E. Buffie, Analyst in Public Finance

IF12570

Clean Vehicle Tax Credit Transfers to Car Dealers

https://crsreports.congress.gov | IF12570 · VERSION 2 · UPDATED

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