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EV Transition Rule

I ordered an EV (BMW i4) that was eligible for the existing tax credit in June of this year.  I understand there is a transition clause in the Inflation Reduction Act that should allow me to take the credit since the car will be counted as "in service" on the day before the law was signed.

 

But the language specifically states that you must have a "written binding contract" to claim the credit.  I am in Virginia, and signed a special order agreement with a non-refundable deposit, and my dealer also issued a signed buyers order with the VIN blank since the car is still scheduled for production.  Is that sufficient?  The IRS gives some guidance that in order for a contract to be binding, it has to not limit damages, and have penalties of at least 5% of the contract.  In Virginia, the special order agreement has no limit of damages clause, but the deposit was less than the 5%.

 

Is there any updated guidance or interpretation on the transition clause from the IRS?  How can I prove my contract is "binding" under my state law?

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4 Replies
VincentL
Employee Tax & Finance Expert

EV Transition Rule

The signed special order agreement with a non-refundable deposit with the dealer with the VIN blank is sufficient.

 

There isn't any updated guidance or interpretation on the transition clause from the IRS.  The signed agreement proves your contract is "binding" under the Federal requirements of the Act. Whether that is sufficient under state law is beyond the scope of the Act.

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EV Transition Rule

I concur with the opinion offered by VincentL.  I have exactly the same situation, with a signed vehicle purchase agreement, with a blank VIN BUT I also did have an order number to tie it to a specific vehicle.

 

Unfortunately, TT Premier has a wrinkle, in that it wants me to change the in service date to be 8/15/2022 - even though it asks the binding contract question.  I believe that to be incorrect, and will start a thread on that issue.

 

NOTE, however, that one MUST ALSO have taken delivery of the vehicle before 1/1/2023 for this to apply.

Vanessa A
Employee Tax Expert

EV Transition Rule

This is not a wrinkle in TurboTax.  TurboTax is following the IRS instructions by having you use 8/15/22 as the date places in service.

 

  The IRS states the following

"Enter 08/15/2022 if you qualify and elect to apply the transition rule discussed below.

Transition rule.

If you purchased, or entered into a written binding contract to purchase, a qualified plug-in electric drive motor vehicle after 2021 and before August 16, 2022, you may elect to treat such vehicle as having been placed in service on August 15, 2022, the day before the enactment date of the Inflation Reduction Act of 2022." Instructions form 8936

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EV Transition Rule

Thanks.  When I downloaded my form 8936 instruction PDF (I think in mid January), the latest one was for January 2022, and of course that didn't have anything about the transition rule in the instructions that are now in the instruction revision from January 2023.

 

Glad to see the clarification.

 

JRJ

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