When Does EV Credit Get Incurred?

[JrBrowzer]

I have signed a purchase agreement for a new EV which will not be available until later this year.  The manufacturer is close to reaching its limit for existing EV credits and it will not fit under the Inflation Reduction Act parameters for a while. That said, would my purchase agreement be the point at which I could claim the $7,500 or does it take affect when I take possession of the vehicle? Thanks

[KochuK · Accepted solution]

Hi JrBrowzer, thank you for the event 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.”

For deliveries/title transfers occur during 2022, the "Pre-IRA 2022" rules apply. The only difference is 1/1/2022 - 8/15/2022, the vehicle does not need to assembled in North America; 8/16/2022 - 12/31/2022, the vehicle needs to be assembled in North America.

If your written agreement is dated before 8/16/22 and you paid a nonrefundable deposit/downpayment of 5% or more and delivery occurs after 8/16/2022 to end of 2022, the vehicle does not need to be assembled in North America. (Transition rule)

Please look at page 2 of below link, under the column of "Pre-IRA 2022" under the label of "Plug-in EV credit": the highlights are -

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

*Phaseout after 200,000 plug-in EVs manufactured and sole

Clean Vehicle Tax Credits in the Inflation Reduction Act of 2022

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

You mentioned that the manufacturer is close to reaching its limit for existing EV credit.

Here is the general rule for manufacturer/vehicle approaching 200,000 cap: Taxpayers may claim the full amount of the credit up to the end of the first quarter after the quarter in which the manufacturer records its sale of the 200,000th qualified vehicle. For the 2nd and 3rd quarters, taxpayers may claim 50% of the credit. For the 4th and 5th quarters, taxpayers may claim 25% of the credit. No credit is allowed after the 5th quarter. (Source - TheTaxBook research tool)

Please see below for Index for Manufacturers published by the IRS

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

Thank you and hope the above helps.