Transition Rule - Inflation Reduction Act

[WA56]

Do you expect that the IRS will offer any leniency for the $7500 EV tax credit under the "transition rule" of the Inflation Reduction Act  for someone that placed an order (which included a refundable deposit) for an EV, which was still eligible at the time for the $7500 tax credit and well before the Inflation Reduction Act was introduced let alone passed by Congress? The "binding contract" requirement/concept under the legislation seems to be very ambiguous. When I inquired prior to the legislation being passed as to whether I could obtain a "binding contract" on my pending purchase from the company I placed the order with I was informed that they could not offer a "binding contract" until a VIN number was assigned and they do not assign VIN numbers until the car is actually placed in production.  Since the car I had order had not yet been placed in production, I was unable to obtain a binding contract prior to the legislation being passed. Not exactly sure where I stand with regard to the $7500 tax credit. Any advise? Thank You.

[KochuK · Accepted solution]

Hi WA56, thanks for the event questions.

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.”

Understand your concerns, however, we can only go by what has been published as to "what is a written binding contract"- a non-refundable deposit/downpayment of 5% or more.

Please see "What is a Written Binding Contract?" in below IRS article.

Plus-In Electric Drive Vehicle Credit (IRC30D)

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

I do not expect the "transition rule" changes to your favor, especially based on your descriptions - a refundable deposit, and the future car is not in production yet, i.e no VIN.

Therefore, if you take delivery/title transfer before 12/31/2022, the "Pre-IRA 2022" rules apply + the car needs to be assembled in North America. Manufacturer cap at 200,000 cars.

If you take delivery/title transfer in 2023, "Post-IRA 2022" rules applies.

Please look at page 2 of below link, under the column of "Post-IRA 2022" under the label of "Clean Vehicles Credit": the highlights are -

*Max amount could be $7,500 non-refundable credit;

*Final assembly in North America;

*Vehicle price limits;

*Taxpayer income limits;

* If you do not have a large income tax liability so the EV credit can be useful in 2023, you might want to wait until 2024 when the dealer can reduce sale price by applicable credit.

Clean Vehicle Tax Credits in the Inflation Reduction Act of 2022

https://crsreports.congress.gov/product/pdf/IN/IN11996

Hope the above helps.