September 12, 2022

On August 16, 2022, the President signed into law H.R. 5376 (referred to as the “Inflation Reduction Act of 2022”). The Inflation Reduction Act law includes several tax provisions and changes to the current tax code. Some of these changes include but are not limited to a corporate minimum tax of 15%; an excise tax of 1% on corporate stock buybacks, additional funding for the IRS, and changes to energy-related tax credits. The provisions regarding the energy-related tax credits, specifically the provisions for electric vehicles, may encourage people to make some changes, considerations, or even a purchase, before year-end.

The new law implements additional limitations for obtaining the electric vehicle credit (also called clean vehicle credit). The Inflation Reduction Act places income limits on who can claim the credit. The test for the income limit is based on the lesser of current or prior year modified adjusted gross income (MAGI). The limit is as follows (and does not have a phaseout):

• $300,000 – filing joint return or surviving spouse
• $225,000 – Head of household
• $150,000 – All other income tax filers

No clean vehicle credit is allowed for taxpayers whose income surpasses the above limitations. However, as per the IRS (IRC 30D ), “If you purchase and take possession of a qualifying electric vehicle after August 16, 2022, and before January 1, 2023, aside from the final assembly requirement, the rules in effect before the enactment of the Inflation Reduction Act for the EV credit apply (including those involving the manufacturing caps on vehicles sold).” Meaning a taxpayer still has time to purchase an electric vehicle and utilize the credit even though they are above the income threshold. However, beware of the assembly requirement rules that are effective immediately.

The Inflation Reduction Act amends the Qualified Plug-in Electric Drive Motor Vehicle Credit (“Clean Vehicle Credit”) and requires that the final assembly is in North America. This requirement takes effect on August 16, 2022. To help understand which vehicles are now accepted for purchase based on the new guidelines, Biden released a list of eligible vehicles (attached here). Please note the list includes a limit for the number of vehicles placed in service. Once a manufacturer places 200,000 vehicles in service, that vehicle basically is no longer eligible for the credit. The limitation takes effect the next quarter after the 200,000 maximum is reached (phase-out). However, both rules are circumvented if a buyer has a written binding contract to purchase a new qualifying vehicle before August 16, 2022. Several car companies did make this push before the signing of this bill.

The law states that additional guidance will be issued before December 31, 2022. However, the current law has several additional provisions that take effect on January 1, 2023. It includes credits for preowned electric vehicles, changes to how the credits are calculated, bifurcations between mineral and battery requirements, and other limitations.

If you are considering purchasing an electric vehicle and would like to know more about the changes to other energy credits or any other part of the Inflation Reduction Act, please reach out to your Topel Forman contact.