The U.S. Department of the Treasury and the Internal Revenue Service (IRS) have released new guidance as part of the Biden-Harris Administration’s Investing in America agenda.
Effective January 1, 2024, the guidance allows consumers to instantly transfer their clean vehicle tax credits to car dealers at the point of sale, reducing the purchase price of new and previously owned clean vehicles.
“Researchers have found that consumers overwhelmingly prefer an immediate rebate at point of sale,” said Chief Implementation Officer for the Inflation Reduction Act, Laurel Blatchford.
The new provision under the Inflation Reduction Act enables consumers to transfer a new clean vehicle credit of up to $7,500 and a previously owned clean vehicle credit of up to $4,000 directly to car dealers. This effectively serves as an upfront down payment, eliminating the need for consumers to claim the credit on their tax returns the following year.
The guidance also outlines registration requirements for car dealers and proposed eligibility rules for consumers. “The IRS has focused on streamlining this process for car dealers as part of its commitment to improving service and helping taxpayers claim the credits they are eligible for,” Blatchford added.
Dealers must register via IRS Energy Credits Online to offer these credits. Once registered, they can submit sales information to the IRS and receive payment for transferred credits promptly. The IRS expects to issue advance payments within 72 hours.
To ensure compliance and prevent fraud, the guidance includes safeguards such as verifying information from the dealer during the IRS Energy Credits Online dealer registration process. Consumers will need to attest their eligibility based on income thresholds to transfer the credit. If they exceed the income limitation, they will have to repay the full value of the transferred tax credit to the IRS.
The new guidance aims to provide clarity on the federal income tax treatment of the transferred credit and advance payment for both the buyer and the dealer. The payment made by the dealer to the consumer will not be deductible by the dealer but will not be includible in the gross income of the consumer.
As it stands, various trims of Tesla’s Model 3, Model Y and Model X qualify for U.S. federal tax credits. The change means in 2024, these credits will be instant instead of buyers waiting another year to receive them after filing tax returns.
