Article | Tax alert
IRS issues proposed regulations on EV battery requirements
April 4, 2023 · Authored by Chad ResnerMike Schiavo
On March 31, 2023, the Treasury Department issued a long-anticipated set of proposed regulations in the form of the section 30d federal tax credit covering various requirements that must be met by automakers for a vehicle to qualify as a clean vehicle (CV) under the Inflation Reduction Act (IRA). Certain taxpayers can claim tax credits of up to $7,500 for purchases of CVs within set price points.
Key takeaways
- The regulations clarify how manufacturers can satisfy the requirements that, broadly speaking, 1) a CV battery’s critical minerals (i.e., aluminum, lithium, zinc, etc.) be extracted or processed in the U.S. or a country with which the U.S. has a free trade agreement, and 2) the battery’s critical components be manufactured in North America.
- The Treasury Department acknowledges the restrictive nature of these clarifications will at least temporarily reduce the number of vehicles that will qualify for the full or partial CV credit. This is principally the result of the U.S. and its trade partners presently accounting for a minority of the production of electric vehicle batteries and their components.
- The regulations apply to CVs placed in service after April 17, 2023.
- The IRS CV credit fact sheet has been updated accordingly.
Background
The IRA overhauled the preexisting electric vehicle tax credit regime, resulting in new Internal Revenue Code (IRC) section 30D which provides a credit of up to $7,500 for certain taxpayers who purchase a CV. Among several other requirements, the vehicle’s final assembly must occur in North America and have a suggested retail price that does not exceed certain thresholds ($80,000 for vans, SUVs and pickup trucks; $55,000 for any other vehicle). Additionally, the taxpayer’s modified adjusted gross income (MAGI) must not be greater than $300,000 if a joint filer, $225,000 for head of household, and $150,000 for all other filers.
The maximum $7,500 credit is the sum of two separate $3,750 components; the first of which is dependent on the percentage of the CV’s battery that is made up of critical minerals that were either: processed or extracted in the U.S. or a country with which it has a free trade agreement
