WASHINGTON — Consumers eyeing electric vehicles (EVs) are now in for a treat as the U.S. Department of the Treasury and the Internal Revenue Service (IRS) revamped the $7,500 EV tax credit system.
Instead of waiting for a tax return to feel the $7,500 benefit, the savings are now immediate. This significantly lowers the barrier to entry for many prospective EV buyers.
Previously, consumers had to purchase their EVs, and then wait until tax season to claim up to $7,500 as a tax credit. Now, the revised approach under the Inflation Reduction Act means that from Jan. 1, 2024, buyers can shift their new clean vehicle credit directly to the dealer.
For example, if a consumer were eyeing a $40,000 EV, the new rule means the sticker price could immediately be reduced to $32,500, with financing arrangements — and down payment — based on the adjusted amount.
More to that, the benefit isn’t just for new vehicles. The guidance also caters to previously owned clean vehicles, allowing for a credit transfer of up to $4,000.
Looking at the rule a bit deeper, the mechanics of the credit transfer involve several steps.
Dealers, to facilitate the transaction, must register via a new IRS portal called Energy Credits Online. Upon successful registration, dealers can then submit sales information. If the sale qualifies, the IRS is set to process and issue the corresponding payments within 72 hours.
Eligibility for consumers revolves around set income thresholds, with a requirement to either have been below the limits the previous year or anticipate falling below them in the year of vehicle purchase.
If consumers’ income exceeds the set limit, they’re mandated to refund the full tax credit value upon tax filing.
“The Treasury’s initiative aligns with the Biden-Harris Administration’s Investing in America agenda. The move is a step towards “lowering transportation costs for consumers”. It also bolsters the American car market,” said Laurel Blatchford, Chief Implementation Officer for the Inflation Reduction Act.
While the system seems streamlined, the IRS isn’t taking any chances. Various safeguards are in place to curb potential fraud or abuse. Only dealers verified and compliant with tax rules will be eligible for the IRS’s advance payments. Information provided during the registration phase undergoes thorough verification.
On the tax front, Friday’s guidance offers clarity regarding the implications of the transferred credit for both the buyer and dealer. In essence, the payment of the credit’s value to the consumer by the dealer is viewed as part of the vehicle’s purchase price, making it an amount realized by the dealer.
The dealer won’t treat advance payments as tax credits, and such payments might even pass the dealer’s regular tax liability. Importantly, neither party will include the transactions in their gross income.
With the new guidance in place, EVs will become more accessible, a move expected to boost the electric vehicle market in the U.S.
The changes also signify the government’s commitment to promoting cleaner transportation, with EVs standing at the front of the revolution.
“These policies will increase apprenticeship in the clean energy economy, and the prevailing wage requirements will ensure that more people doing this work are getting the fair wages they deserve. This will create opportunities for workers to thrive in a critical industry while also meeting the President’s climate goals and securing our energy future,” said Acting Secretary of Labor Julie Su.
While EV stocks are trading down on Friday, shares of Tesla Inc (NASDAQ:TSLA), Rivian Automotive Inc (NASDAQ:RIVN), and Lucid Group Inc (NASDAQ:LCID) saw a lift after the Treasury Department issued its new guidance.
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Edited by ISAAC OKOTH NYAMUNGU and Newsdesk Manager
