Article

An overview of the recent amendments to section 30D

Changes to the federal income tax credits for clean vehicles

May 23, 2024 · Authored by Robert Moczulewski, Jeronimo Aldrete

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.

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.