Clean Vehicle Tax Credits in the Inflation Reduction Act of 2022

INSIGHTi

Clean Vehicle Tax Credits in the Inflation
Reduction Act of 2022
August 24, 2022
P.L. 117-169, commonly referred to as the Inflation Reduction Act of 2022 (IRA 2022), as signed into law
on August 16, 2022, modified tax credits for electric vehicles (EVs) and fuel cell vehicles. The law also
enacted new tax credits for used and commercial clean vehicles. This Insight provides information on the
tax credits for clean vehicles, highlighting the tax credits that were available before the IRA 2022 was
signed into law, and qualifying criteria for vehicle tax credits during the remainder of 2022, in 2023, and
beyond. For background on the plug-in EV credit before August 16, 2022, see CRS In Focus IF11017,
The Plug-In Electric Vehicle Tax Credit, by Molly F. Sherlock.
Tax Credits for Clean Vehicles Purchased in 2022
Multiple factors determine whether an EV purchased in 2022 qualifies for federal tax credits. Many EVs
purchased before August 16, 2022, qualify for a tax credit of up to $7,500 (with smaller amounts available
for certain makes and models). Vehicles manufactured by Tesla or General Motors purchased in 2022 are
not eligible for tax credits, as Tesla and GM have exceeded the 200,000 vehicle threshold that limits the
number of tax credits that can be claimed for vehicles made by a manufacturer.
For vehicles purchased after August 16, 2022, only vehicles for which final assembly occurred in North
America qualify. The U.S. Department of Energy has released a list of model year 2022 and 2023 vehicles
with final assembly in North America.
EV purchasers who ordered a vehicle before August 16, 2022, and take delivery of their vehicle at a later
date may be able to claim tax credits for vehicles not assembled in North America if they had a “written
binding contract” to purchase the vehicle. In answering the question “what is a written binding contract,”
the IRS noted that a nonrefundable deposit or down payment of 5% of the purchase price can be an
indication of this type of contract.
Congressional Research Service
https://crsreports.congress.gov
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CRS INSIGHT
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Source: CRS analysis of P.L. 117-169 (commonly referred to as the Inflation Reduction Act of 2022).
Tax Credits for Clean Vehicles Purchased After 2022
Most of the changes to the clean vehicle tax credit are effective starting in 2023. (The major exception is
the final assembly in North America requirement, noted above.) Beginning in 2023, EVs qualify only if

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the vehicle’s battery meets certain conditions. The maximum potential credit is the sum of two amounts:
the critical mineral amount and the battery component amount.
 Critical Minerals ($3,750): Starting in 2023 (and after the Treasury issues guidance on this
requirement), to qualify for this portion of the credit, at least 40% of the value of the battery’s
applicable critical minerals must have been extracted or processed in the United States or in a
country with which the United States has a free trade agreement, or recycled in North America.
The 40% amount increases to 50% in 2024, 60% in 2025, 70% in 2026, and 80% in 2027 and
thereafter.
 Battery Components ($3,750): Starting in 2023 (and after the Treasury issues guidance on this
requirement), to qualify for this portion of the credit, at least 50% of the value of the battery’s
components must have been manufactured or assembled in North America. The 50% amount
increases to 60% in 2024 and 2025, 70% in 2026, 80% in 2027, 90% in 2028, and 100% in 2029
and thereafter.
Additional restrictions apply to vehicle batteries starting in 2024 and 2025. Specifically, starting in 2024,
an EV cannot qualify for the clean vehicle tax credit if any of the vehicle’s battery components were
manufactured or assembled by a foreign entity of concern. Starting in 2025, an EV cannot qualify for the
clean vehicle credit if the vehicle’s battery contains critical minerals that were extracted, processed, or
recycled by a foreign entity of concern.
Numerous media outlets citing industry trade organizations have reported that a limited number of EVs
currently on the market will qualify for the clean vehicle tax credit in 2023. Over time, as the battery
critical minerals and components requirements tighten, there are claims that no vehicles would qualify.
That could change, however, if supply chains were to shift before the future changes become effective.
Other changes to the credit also take effect in 2023. These include the credit’s new income limits, limits
based on the vehicle’s price, and new reporting requirements (including both taxpayer and seller vehicle
information number [VIN] reporting). Starting in 2024, taxpayers will be able to elect to transfer credits
to dealers, effectively allowing the credit to be a point of sale rebate.
The IRA 2022 also enacted two new tax credits for clean vehicles. The first is the new IRC Section 25E
credit for previously owned clean vehicles. This tax credit is 30% of a used EVs’ sales price, up to $4,000.
It can be claimed by taxpayers with income of less than $150,000 (for joint filers; $75,000 for single
filers) for used EVs with a purchase price of $25,000 or less. The second is the new IRC Section 45W tax
credit for commercial clean vehicles. This tax credit is 15% of a qualifying vehicle’s cost (30% if the
vehicle does not have a gas- or diesel-powered internal combustion engine), limited to the incremental
cost of the vehicle relative to a solely gas or diesel powered vehicle. The credit for light-duty vehicles is
limited to $7,500, while heavy-duty vehicles can qualify for tax credits of up to $40,000. This credit could
help support deployment of electric or hydrogen trucks and busses.
Additional Resources
 Treasury FAQ on the Initial Changes to the Vehicle Tax Credits
 Department of Energy list of EVs assembled in North America
 IRS information for consumers about the Section 30D tax credit

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Author Information

Molly F. Sherlock

Specialist in Public Finance




Disclaimer
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