An overview of the recent amendments to section 30D

The IRS recently outlined significant amendments to Internal Revenue Code (IRC) section 30D, which provides taxpayers with federal tax credits for the purchase of electric vehicles (EVs) and plug-in hybrid vehicles. These credits are designed as a financial incentive for individuals to invest in modern, energy-efficient transportation options.

Here are the notable updates to the regulations concerning IRC section 30D:

Broader definition of eligible vehicles

The final regulations under section 30D have significantly expanded the definition of eligible vehicles for clean vehicle credits. Previously, the tax credit was primarily aimed at "qualified plug-in electric drive motor vehicles," which primarily included vehicles that relied heavily on an electric motor for propulsion and could be recharged from an external source of electricity.

The revised definition introduces the category of "new clean vehicles," broadening the eligibility to include motor vehicles that meet specific criteria, including having a significant electric propulsion component and satisfying final assembly requirements within North America.

Updated requirements for critical minerals and battery components

The Inflation Reduction Act (IRA) amendments also have revised the structure of the section 30D credit. Previously, the credit amount was primarily based on battery capacity, with incremental increases for additional capacity. Under the new rules, the maximum credit remains at $7,500 per vehicle but is now split into two equal parts of $3,750 each. One part is contingent on meeting critical minerals requirements, and the other on meeting battery components requirements.

The Critical Minerals Requirement stipulates that a certain percentage of the critical minerals used in the vehicle’s battery must be sourced from the U.S. or a country with which the U.S. has a free trade agreement, or recycled in North America.

Special rules

The Inflation Reduction Act introduces specific amendments under section 30D for vehicles placed in service after Dec. 31, 2022. Firstly, the section 30D credit can only be claimed once per Vehicle Identification Number (VIN), effectively preventing multiple claims for a single vehicle and enhancing the integrity of the tax system. Additionally, taxpayers will be required to report the VIN of the vehicle for which the credit is claimed on their tax return, improving transparency. Income limitation will also be imposed that will eliminate the credit for high-income taxpayers.

Manufacturers suggested retail price (MSRP) limitations

Additionally, price caps will be introduced where no credit is available for vehicles exceeding set MSRP thresholds -- $80,000 for vans, SUVs and pickup trucks, and $55,000 for other types of vehicles. This measure is designed to prevent the subsidy of luxury vehicles, thereby focusing the credit's benefits on more affordably priced electric vehicles and broadening its appeal across more economic classes.

Transfer of credit

Under the revised regulations, the ability for taxpayers to elect to transfer the clean vehicle credit to dealers significantly changes the dynamics at the point of sale. This transformation allows the credit, which would typically benefit the taxpayer, to be directly applied to the dealer instead. This arrangement ensures not only transparency but that the taxpayer is aware of the benefits they relinquish in the transfer.

Elimination of phaseout

The elimination of the phaseout for the section 30D tax credit is a significant update to the electric vehicle incentive program. Previously, the tax credit available to buyers of new electric vehicles would begin to decrease and eventually phase out once a car manufacturer had sold 200,000 eligible vehicles. With this rule change, the phaseout based on the number of vehicles sold by a manufacturer has been removed. Now, no matter how many vehicles a manufacturer sells, the tax credit does not decrease.

Applicability dates

The new legislation stipulates specific dates for the applicability of different amendments, ensuring that all updates are synchronized and providing stakeholders, manufacturers, taxpayers and dealers with clear guidance on when these changes will affect them. Effective for taxable years ending after Dec. 4, 2023, these changes indicate that any vehicle placed in service beyond this date will fall under the revised regulations.

Termination

There will be new stipulation setting a firm end date for the clean vehicle tax credit. Specifically, no credit will be granted for vehicles that are placed in service after Dec. 31, 2032.

Next steps

For more details surrounding the specific changes and updates, review the IRS website. And to discuss how Baker Tilly can assist your organization with understanding section 30D tax credits and maximizing the available benefits of the IRA, contact us today.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.