Updated IRS guidance for EV Tax Credit Transition Rule

[palyamrao]

Hello: I placed a binding contract for EV SUV on July 13th 2022. But due to supply chain issues the vehicle will be delivered in April 2023. Can I still claim EV Tax Credit of $7500 under IRA transition rules? Looks like IRS has updated guidelines for this credit. My purchase date is still before August 16th 2022.

IRS has an update to transition rule as of December 2022.

https://www.irs.gov/credits-deductions/credits-for-new-electric-vehicles-purchased-in-2022-or-before

Purchase date vs. delivery date

If you entered a written binding contract to buy a vehicle before August 16, 2022, but took possession on or after August 16, 2022, and before January 1, 2023, you may claim the credit based on the prior rules and disregard the assembly requirement.

If you purchased a vehicle between August 16, 2022 and December 31, 2022 but don't take delivery of the vehicle until 2023, see Credit for New Clean Vehicles Purchased in 2023 and After. 

How to Claim the Credit

To claim the credit for a vehicle you took possession of in 2022, file Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit (Including Qualified Two-Wheeled Pl... with your 2022 tax return. You will need to provide your vehicle's VIN.

[Anonymous_]

@Mike9241 

[DoninGA · Accepted solution]

IRS website for Frequently asked questions related to new, previously-owned and qualified commercial clean vehicle credits - https://www.irs.gov/pub/taxpros/fs-2022-42.pdf

Q5. If I order a new clean vehicle in one year and don’t receive it until a subsequent year, when do I claim the credit?
(added December 29, 2022)
A5. The new clean vehicle credit is claimed in the tax year that the vehicle is placed in service, meaning the tax year that includes the date the taxpayer takes delivery of the vehicle

[NCperson]

@palyamrao - It appears that the driving determinent is 'take possession / take delivery' to demarcate between paragraph 1 and paragraph 2.  Whether a 'binding agreement' or a 'purchase' isn't really important if the delivery date is 2023. 

1) If you entered a written binding contract to buy a vehicle before August 16, 2022, but took possession on or after August 16, 2022, and before January 1, 2023, you may claim the credit based on the prior rules and disregard the assembly requirement.  the vehicle will be delivered in April 2023. So you don't qualify under this statement, right? 

2) If you purchased a vehicle between August 16, 2022 and December 31, 2022 but don't take delivery of the vehicle until 2023, see Credit for New Clean Vehicles Purchased in 2023 and After.    the vehicle will be delivered in April 2023, so you qualify under this statement, right?

Why do you think you would not be subject to paragraph #2 ?

Where is the car being manufactured? 

[palyamrao]

I don't think I fall under #2 as I did not order my car after August 16th. I ordered it before.

I think IRS has to add #3 for my situation? Ordered before August 16th but delivered in 2023. It should be clear whether I fall under transition rule or under new law.

The car is built in Austria by Magna. Not sure whether they have any final assembly in US.

[NCperson · Accepted solution]

@palyamrao - okay, I see your point.

I think we have to read these two links together as I believe your situation is covered.

https://www.irs.gov/credits-deductions/credits-for-new-electric-vehicles-purchased-in-2022-or-before

https://www.irs.gov/credits-deductions/credits-for-new-clean-vehicles-purchased-in-2023-or-after

• to obtain the EV credit, the North American manufacturing requirement is required on all purchases occuring on or after 8/17/22
• However, there is one exception: if there was a binding contract in place on 8/16/22 and possession occured no later than 12/31/22, then the North Amrerican manufacturing requirement doesn't apply.

You haven't purchased  the vehicle as you probably don't have legal title; you have a binding contract where certain terms and conditions need to be satisfied to get to 'purchase and sale'.  Further, if "binding contract" and "purchase" were the same thing, the IRS wouldn't have changed the wording and created any confusion.   "Binding contract" precedes "purchase" and the two activities do not occur simultaneously.   

My read of the rules is those with a binding contract had to the end of the year to take possession and avoid the North American manufacturiung requirment. The IRS limited the transition rules window to 4.5 months and wasn't going to let the exception go on for even more months (or years). 

My conclusion is that since possession won't occur until 2023 and the automobile will be not be manufactured in North America, the car is not eligible for the EV credit. 

Might be worth discussing your contract with the dealer, I suspect they and Magna are dealing with this issue on each and every delayed delivery on a binding contract taken prior to August 16.   You are not the only person impacted.  Will they negotiate the price given their delays?