EV Tax Credit Changes

[rsteven7]

I have a contract to purchase an EV that I ordered before the Inflation Reduction Act was signed.  I've read the transition language, and their seems to be a lot of confusion on what a "binding contract" is. In Virginia, if you have a non-refundable deposit and a signed contract to purchase a vehicle, does this make you eligible for the 2022 version of the credit?  The IRS language also gives an amount of 5% of the contract value - does that apply to all states?

[KochuK]

Hi rsteven7, thank you for the question.

Inflation Reduction Act of 2022 (IRA 2022) signed into law on 8/16/2022. Hence terms used here are “Pre-IRA 2022” and “Post-IRA 2022.”

A Written Binding Contract: The IRS noted that a nonrefundable deposit or down payment of 5% of the purchase price can be an indication of this type of contract. This is a Federal credit, so we need to follow Federal rules. Based on your description, if your non-refundable deposit is 5% or more, I would say you have a written binding contract; therefore, can use the transition rule.

If you entered into a written binding contract to purchase a new qualifying electric vehicle before August 16, 2022, but do not take possession of the vehicle until on or after August 16, 2022 (for example, because the vehicle has not been delivered), you may claim the EV credit based on the rules that were in effect before August 16, 2022. The final assembly requirement does not apply before August 16, 2022. That means, your EV does not have to assembled in North America. You can use Pre-IRA 2022 rule.

Plus-In Electric Drive Vehicle Credit (IRC30D)

https://www.irs.gov/businesses/plug-in-electric-vehicle-credit-irc-30-and-irc-30d

Please see below for Index for Manufacturers

https://www.irs.gov/businesses/irc-30d-new-qualified-plug-in-electric-drive-motor-vehicle-credit

Hope the above helps.

[rsteven7]

That helps - but the language says that what constitutes a written binding contract is state specific.  Some states (CA and WA) as an example do not allow for a vehicle special order to be binding on the purchaser until the vehicle is delivered to the dealer.  In VA, I am not sure what makes it binding.  My deposit was less than the 5% threshold (closer to 2%), but it is non-refundable and I am required to take delivery of the car within 48 hours of its delivery to the dealership and to make finance arrangements at that time.

So - the "binding" language is still a little fuzzy for a bunch of people given different state laws on what constitutes a binding order (or even if they are allowed).

[KochuK]

Thanks for your reply. I agree with you, need clarification. In the mean time, we have limited guidance.

Quote

What Is a Written Binding Contract?

In general, a written contract is binding if it is enforceable under State law and does not limit damages to a specified amount (for example, by use of a liquidated damages provision or the forfeiture of a deposit). While the enforceability of a contract under State law is a facts-and-circumstances determination to be made under relevant State law, if a customer has made a significant non-refundable deposit or down payment, it is an indication of a binding contract. For tax purposes in general, a contract provision that limits damages to an amount equal to at least 5 percent of the total contract price is not treated as limiting damages to a specified amount. For example, if a customer has made a non-refundable deposit or down payment of 5 percent of the total contract price, it is an indication of a binding contract. A contract is binding even if subject to a condition, as long as the condition is not within the control of either party. A contract will continue to be binding if the parties make insubstantial changes in its terms and conditions.

Unquote

https://www.irs.gov/businesses/plug-in-electric-vehicle-credit-irc-30-and-irc-30d

Thank you for your insight.

[fnm500]

Do we need to include proof of 5% non refundable deposit as the binding offer when submitting our tax returns? With which form in particular?

[ThomasM125]

No, you don't need to include proof of the 5% non-refundable deposit when you submit Form 8936 to receive the electric vehicle purchase credit. You just need to keep the proof with your tax records in case you get audited on the matter.

@fnm500

[NJturtlePower]

@KochuK FYI in the most recent IRS revisions the specific 5% language has been removed....all else remains. Bottom line is if you have a non-refundable deposit/down payment on a binding contract PRIOR to Aug. 16th, 2022 you should be eligible to claim this Federal EV incentive under the Transition Rules. 

Many are just waiting on a VIN (Fisker Ocean and Rivian R1T/R1S buyers specifically) to amend their 2022 tax returns as indicated, "To elect the credit under the prior rules you must elect the credit on your 2022 tax return after you take delivery of the vehicle.  Depending on the date the vehicle is delivered, you can claim the credit on your original, superseding, or amended 2022 tax return. "

The qualified vehicle listings by manufacture have been updated here:
https://www.irs.gov/credits-deductions/manufacturers-and-models-for-new-quali[product key removed]le...