Clean Vehicle Tax Credit Transfers to Car Dealers
January 16, 2024
Clean Vehicle Tax Credit Transfers to Car Dealers
On October 6, 2023, the Internal Revenue Service (IRS)
nonrefundable, meaning that credit amounts in excess of
issued proposed regulations for transfers of clean vehicle
tax liability are not refunded to the taxpayer.
tax credits from consumers to car dealers. The proposed
regulations apply to the clean vehicle credit (CVC) and the
The Used Clean Vehicle Credit
used clean vehicle credit (UCVC), both of which were
The used clean vehicle credit, described in IRC Section
enacted under the Inflation Reduction Act of 2022 (P.L.
25E, provides a tax credit for purchases of used electric or
117-169, IRA). The proposed regulations detail how
fuel cell vehicles. In 2022, the JCT projected that the credit
transferred credits—unlike credits claimed when tax returns
would reduce federal revenues by $0.4 billion between
are filed—may exceed total income tax liabilities.
FY2022 and FY2026.
The Clean Vehicle Credit
To qualify for the UCVC, a vehicle must be purchased from
Taxpayers acquiring new electric vehicles and fuel cell
a licensed dealer for $25,000 or less. The vehicle must be
vehicles may qualify for a clean vehicle credit. The CVC is
acquired no later than December 31, 2032, and the vehicle’s
described in Section 30D of the Internal Revenue Code
model year must be at least two years before the year of
(IRC). The Joint Committee on Taxation (JCT) projects that
purchase. The credit can be claimed once per vehicle.
the credit would reduce federal revenues by $19 billion
between FY2023 and FY2027.
The credit equals 30% of the vehicle’s sales price up to a
maximum of $4,000 (when the price exceeds $13,333).
Eligible vehicles must have been acquired before 2033 and
Because the UCVC cannot be claimed for vehicles costing
have undergone final assembly in North America.
more than $25,000, the value of the credit falls from $4,000
Individuals and businesses may claim the credit for at most
to $0 when a car’s price rises from $25,000 to $25,001.
one vehicle per year.
Individuals and couples are eligible for the credit; business
The credit amount is $3,750 for vehicles meeting the
entities are not. The taxpayer must purchase the vehicle for
critical minerals requirement plus $3,750 for vehicles
personal use, not for resale, and cannot have claimed
meeting the battery components requirement, for a
another UCVC in the previous three years. The taxpayer’s
maximum total credit of $7,500. To meet the former
MAGI for either the current or previous year must be at or
requirement, a car’s battery must meet or exceed a certain
below $150,000 for married couples, $112,500 for heads of
threshold percentage of critical minerals that were extracted
household, and $75,000 for single filers and others. When
or processed in the United States or a country with which
claimed on taxpayers’ income tax returns, credit amounts in
the United States has a free trade agreement, or must have
excess of tax liabilities cannot be received as refunds.
been recycled in North America. The threshold percentage
starts at 40% in 2023 and rises gradually to 80% in 2027
Credit Transfers to Car Dealers and the
and subsequent years. To meet the battery components
Increased Value of Transferred Credits
requirement, at least a certain share of a battery’s
Starting January 1, 2024, taxpayers may claim the CVC and
component parts must be manufactured or assembled in
the UCVC as rebates when purchasing their vehicles. To
North America. The share starts at 50% in 2023 and rises to
claim the credits as rebates, taxpayers must transfer the
100% in 2029 and later years. In addition, vehicles acquired
credit to the car dealer, who then receives the credit from
after 2023 cannot use battery components manufactured or
the government. Car dealers in turn must compensate
assembled by a foreign entity of concern (FEOC); for
taxpayers with either a cash payment or a reduced price on
vehicles acquired after 2024, no applicable critical minerals
the car; the value of the cash payment or price reduction
in the vehicle’s battery may come from a FEOC. Under
must equal the value of the applicable credit. Buyers cannot
preliminary regulations from the IRS, FEOCs would
transfer partial credits, and credits transferred to eligible
include companies operating in or significantly influenced
dealers are increased by 6.0445%. A 2022 survey finds that
by the governments of China, Russia, North Korea, or Iran.
prospective car buyers prefer such point-of-sale rebates to
traditional tax credits, with the immediacy of the rebates
To receive the credit, a taxpayer’s modified adjusted gross
being an important factor for most consumers. The
income (MAGI) for either the current or previous year must
preference for rebates is strongest among low-income
be at or below $300,000 for married couples, $225,000 for
buyers, used car buyers, and buyers of low-priced vehicles.
heads of household, and $150,000 for single filers and
others. For purposes of the clean vehicle tax credits, MAGI
Taxpayers who transfer a credit must still file Form 8936
is equivalent to adjusted gross income excluding deductions
with their income tax return and indicate that they claimed
for expatriates and residents of American territories. When
the CVC or the UCVC earlier in the year. Dealers must
claimed on a taxpayer’s income tax return, the credit is
inform taxpayers of the relevant MAGI limits, and
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taxpayers must attest that they expect to be eligible for the
couples at different income levels. In these stylized
given credit. Taxpayers who transfer a credit but exceed the
examples, a couple earning $20,000 per year would have no
limits must pay back the credit to the IRS when filing their
income tax liability, so their nonrefundable CVC would be
taxes.
$0, whereas a transferred CVC would be $7,500 if both the
critical minerals and battery components requirements are
For many taxpayers, the difference between a transferred
met. (If only one requirement is met, the transferred credit
credit and a credit received at tax time is a matter of
would be worth $3,750.) A married couple earning $95,558
convenience; the monetary value of the credit does not
would have income tax liabilities of $7,500, so couples
change. However, for low-income taxpayers, one aspect of
earning between $95,558 and $300,000 would receive the
the proposed IRS regulations would significantly increase
same amounts from transferred and nonrefundable credits.
the value of the credits. Specifically, the regulations state
Couples with incomes above $300,000 would not receive
that “the amount of the clean vehicle credit an electing
the credit, as they would exceed the MAGI threshold.
taxpayer may transfer ... can exceed the electing taxpayer’s
regular tax liability.” This rule applies to the UCVC as well.
Table 2 uses similar stylized examples to contrast
transferred UCVCs and nonrefundable UCVCs for married
Because of the design of the federal income tax, low-
couples with different incomes. Since the UCVC is
income taxpayers often have little to no income tax liability.
proportional to the cost of the purchased vehicle, different
Thus, they generally do not receive the full value of
credit amounts are shown for both high- and low-cost
nonrefundable credits. By allowing transferred credits to
vehicles. For a couple earning $20,000 and purchasing a
exceed income tax liabilities, the IRS regulations would
qualifying used vehicle for $13,333 or more, a transferred
increase the CVC and the UCVC to their maximum value
credit is worth $4,000, whereas a nonrefundable credit is
for all eligible taxpayers below the MAGI thresholds.
worth $0. For couples earning between $66,392 and
$150,000, both nonrefundable credits and transferred
The regulations proposed by the IRS would significantly
credits have a maximum value of $4,000 (based on the
increase the value of the CVC and the UCVC for low-
price of the vehicle). Couples purchasing lower-priced
income taxpayers who transfer the credits, as illustrated in
vehicles receive smaller credits, and couples earning more
Table 1 and Table 2. The total benefit to low-income
than $150,000 cannot receive the UCVC.
households would also depend on the extent to which they
purchase qualifying vehicles and (in the case of the UCVC)
Table 2. Used Clean Vehicle Credits for Married
the prices of the purchased vehicles.
Couples
Nonrefundable vs. transferred UCVC amounts for stylized
Table 1. Clean Vehicle Credits for Married Couples
examples of married couples, by AGI, tax year 2024
Nonrefundable vs. transferred CVC amounts for stylized examples
of married couples, by AGI, tax year 2024
Adjusted Gross
Nonrefundable
Transferred
Income (AGI)
Credit Amount
Credit Amount
Adjusted Gross
Nonrefundable
Transferred
Income (AGI)
Credit Amount
Credit Amount
Used Vehicle Costing Between $13,333 and $25,000
Vehicle Meeting Both Domestic Content Requirements
$20,000
$0
$4,000
$20,000
$0
$7,500
$60,000
$3,233
$4,000
$60,000
$3,233
$7,500
$125,000
$4,000
$4,000
$125,000
$7,500
$7,500
$200,000
$0
$0
$350,000
$0
$0
Used Vehicle Costing $8,000
Vehicle Meeting One of Two Domestic Content Requirements
$20,000
$0
$2,400
$20,000
$0
$3,750
$60,000
$2,400
$2,400
$60,000
$3,233
$3,750
$125,000
$2,400
$2,400
$125,000
$3,750
$3,750
$200,000
$0
$0
Source: CRS calculations.
$350,000
$0
$0
Notes: Al couples are assumed to claim the standard deduction and
Source: CRS calculations.
no other nonrefundable credits. The couple earning $200,000 is
Notes: Al couples are assumed to claim the standard deduction and
assumed to have earned more than $150,000 in 2023. MAGI is
no other nonrefundable tax credits. The couple earning $350,000 is
assumed to equal AGI for al couples.
assumed to have earned more than $300,000 in 2023. MAGI is
assumed to equal AGI for al couples.
Nicholas E. Buffie, Analyst in Public Finance
Table 1 contrasts the values of transferred CVCs and
IF12570
nonrefundable CVCs for several hypothetical married
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Clean Vehicle Tax Credit Transfers to Car Dealers
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https://crsreports.congress.gov | IF12570 · VERSION 1 · NEW