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Upcoming Changes to the Clean Vehicle Tax Credit Explained

Posted 11/16/2023

To encourage clean and energy-efficient vehicle adoption, the United States government has made significant changes to the Clean Vehicle tax credit, to take effect from January 1, 2024. These changes make it easier for drivers to access tax credits when purchasing clean vehicles. Now consumers will be able to transfer their tax credit directly to the dealer at the point of sale. This simplifies the process, benefiting both consumers and the dealerships, but it also requires dealers to register on an IRS portal. Here’s what you need to know about these new changes at your dealership. 

What Is the Clean Vehicle Tax Credit? 

The Clean Vehicle tax credit, also known as the Electric Vehicle (EV) tax credit, is a financial incentive provided by the U.S. government to encourage the purchase of electric and energy-efficient vehicles. Starting on January 1, 2024, consumers can transfer their new clean vehicle credit, up to $7,500, and their previously-owned clean vehicle credit, up to $4,000, to an authorized car dealer.   This change allows registered dealers to either lower the vehicle's purchase price or provide a cash equivalent for the full credit amount applicable to the eligible vehicle. Now individuals can claim the tax credit at point of sale, rather than waiting until the federal income tax filing season.  This tax credit is part of the Inflation Reduction Act (IRA), which simplifies the purchase process by essentially providing a down payment to consumers at the time of the vehicle purchase. Moreover, this shift offers an added benefit for buyers by reducing the upfront financing requirement, as the credit is applied at the point of sale. This results in lower monthly payments, especially benefiting low-income shoppers who often face high-interest rates on loans for new or used EVs

What Must Dealerships Do? 

Dealerships must complete registration through an IRS portal in preparation for this new transfer process. The Energy Credits Online portal enables authorized dealers to promptly communicate clean vehicle sales to the IRS, expediting the processing of credit transfers. Dealers can also use the portal to submit "time of sale" reports for verifying vehicle qualification for credits, regardless of whether the purchaser opts to transfer the credit to the dealer. According to the U.S. Department of Treasury, “When a buyer chooses to transfer the credit, registered dealers will reduce the purchase price of the vehicle or provide cash to the buyer. The amount provided must equal the full amount of the credit available for the eligible vehicle. When completing the sale, the dealer will electronically submit information regarding the transfer, including a time of sale report, to receive an advance payment for the value of the credit. The IRS expects to issue advance payments within 72 hours.”   To ensure transparency, dealers must provide necessary disclosures to buyers during the credit transfer process. Guidelines were released by the IRS in October 2023 regarding credit eligibility and safeguards to prevent fraud or misuse.  The guidelines clarify tax treatment of transferred credits and will generally not affect dealer tax liability. The credit's value paid by the dealer to the buyer is considered part of the vehicle's purchase price. 

How Do Consumers Benefit? 

For consumers, there are three main benefits of transferring the tax credit to the dealer: 

  1. Immediate Savings: Buyers can quickly enjoy the benefits of the tax credit, making the purchase of a clean vehicle more affordable.

  2. Streamlined Process: The process becomes more straightforward, eliminating the need to wait until tax season to claim the credit.

  3. Reduced Upfront Costs: Transferring the tax credit to the dealer can significantly lower the initial cost of the vehicle, making clean vehicles more accessible to more car buyers.

Key Takeaways  

The recent changes to the Clean Vehicle tax credit creates a more convenient approach for consumers to benefit from tax incentives. However, dealerships must register on the IRS portal to participate in this program in 2024. This change represents a positive step toward a more sustainable and energy-efficient future, ultimately enhancing the accessibility of clean transportation options. 

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