EV/PHEV Tax Credit Changes with Inflation Reduction Act

[FredTax22]

The "Inflation Reduction Act" recently was passed by the Senate and is on track to likely be passed by the House this Friday and signed into law by President Biden shortly afterwards. Of note are a number of significant changes to the electric vehicle (EV) / plug-in hybrid EV (PHEV) tax credit. Many existing cars will no longer qualify under the new rules, which include requiring North American assembly and requirements associated with the sourcing of materials used in the batteries. Most of the new EV credit info goes into effect on January 1, 2023, although the NA assembly requirement goes into effect when the bill is enacted and the battery sourcing requirements go into effect once the Secretary (of Transportation?) issues guidance.

However, there is a transition clause which applies if the buyer "before the date of enactment of this Act, purchased, or entered into a written binding contract to purchase, a new qualified plug-in electric drive motor vehicle".

I have ordered a new car (a 2023 BMW 330e, which qualifies for a $5,836 tax credit under the existing rules) through a dealership. I have signed a build order, put down a large deposit, and received a VIN as the car is in production right now and due for delivery in about a month. However, it will not arrive before the bill is signed into law.

What tax credits, if any, would I qualify for?

• The old/existing tax credit? (Can I be grandfathered in under the transition clause? If so, is a signed build order and deposit sufficient to count as a "written binding contract to purchase" in the eyes of the IRS? Do I need to sign something else with the dealer this week prior to the passage of the bill into law?)
• The new tax credit? (Since the 330e is assembled in North America (Mexico), if I take receipt of the car and purchase it after the passage of the bill into law, but before the government issues battery sourcing guidance [see pg389, lines 16-19], would I qualify for the new tax credit? Or even the old tax credit?)
• Neither tax credit?

[NCperson]

@FredTax22 - you've entered into a binding contract, so what are you concerned about? if audited, you have a contract dated prior to the date the bill is signed as your proof of that binding contract. 

As for the new tax credit, until the Transporation Secretary provides the guidance, I don't see how anyone could answer your question about the new tax credits. 

[NCperson]

@FredTax22  also , if passed, the law puts an income cap on who is eligible for the credit.  

if your AGI exceeds the following for either the current tax year or the prior tax year, you would not be eligible for the credit (technically it is a MAGI requirement but AGI is going to work for most all): 

$150k - filing single

$225k - filing HOH

$300K  - filing joint

I am assuming this would begin in 2023, so purchasing a qualified EV in 2023 would require your 2022 and 2023 AGI to be below these numbers to be eligible for the credit.   

There appears to be a lot to sort out with the EV credits going forward.

[FredTax22]

Yes, I’ve put down a deposit and signed a “build order” but it is unclear to me whether or not that constitutes a “written binding contract to purchase” in the eyes of the IRS. Some on the internet argue that it will suffice, while others say only the final signed paperwork (given at the point of the car’s  delivery/sale) will count.

I’m under the income caps. But you’re right—there is still a lot to sort out. I’m very fuzzy as to what happens between the signing of the bill into law and 1/1/2023. Will cars purchased during that time be eligible for the old credit, the new credit, or neither credit? It is confusing because different provisions appear to go into effect at different times (eg NA assembly when the bill is signed, vs battery sourcing when guidance is issued, etc).

Ultimately I think we will have to wait to see what the IRS says, but since some of these changes theoretically take place immediately when the bill is signed, it affects purchasing decisions that have to be made now…

[NCperson]

@FredTax22 - have you discussed the situation with your dealer to confirm your situation is a 'binding contract'? 

[FredTax22]

Yes, but they’re struggling to figure out the implications of all of this themselves. They’ve reached out to corporate, but it doesn’t sound like they’ve gotten anything concrete.