The IRS recently announced that it has issued proposed regulations, Revenue Procedure 2023-33 and FAQs  for the transfer of new and previously owned clean vehicle credits from the taxpayer to an eligible entity for vehicles placed in service after Dec. 31, 2023.

The IRS noted that the Inflation Reduction Act "provides taxpayers with credits for qualified new and previously owned clean vehicles acquired and placed in service during the taxable year. Beginning Jan. 1, 2024, in certain situations, taxpayers will be able to transfer the new and previously owned clean vehicle credits to eligible entities."

The guidance indicates how taxpayers can transfer clean vehicle credits from new and used vehicles to car dealers who are eligible to receive advance payment of either credits. The guidance also indicates how dealers can become eligible entities to receive such advance payments.

According to FAQ 1—What is a new vehicle for purposes of the new clean vehicle credit?—under Topic A — Eligibility Rules for the New Clean Vehicle Credit, a new clean vehicle is defined as "a clean vehicle placed in service on or after January 1, 2023, that is acquired by a taxpayer for original use." In addition, to qualify for the credit, the vehicle:

• Cannot be acquired for resale;

• Must be manufactured by a qualified manufacturer;

• Must meet the definition of a motor vehicle under Title II of the Clean Air Act (that is, any vehicle manufactured primarily for use on public streets, roads, and highways. It must also have at least four wheels);

• Must have a gross vehicle weight rating of less than 14,000 pounds;

• Must be powered to a significant extent by an electric motor with a battery capacity of 7 kilowatt hours or more and must be capable of being recharged from an external source of electricity; and

• Must have final assembly in North America.

A list of eligible vehicles is available online. And FAQ 2 has additional detail.

In Topic A FAQ 6—What is the amount of the new clean vehicle credit?—the IRS provides, "Beginning January 1, 2023, eligible vehicles may qualify for a tax credit of up to $7,500. The amount of the credit depends on when the eligible new clean vehicle is placed in service and whether the vehicle meets certain requirements for a full or partial credit.

For vehicles placed in service on or after April 18, 2023, the credit amount will depend on the vehicle meeting the critical minerals requirement ($3,750) and/or the battery components requirement ($3,750). A vehicle meeting neither requirement will not be eligible for a credit, a vehicle meeting only one requirement may be eligible for a $3,750 credit, and a vehicle meeting both requirements may be eligible for the full $7,500 credit.

For vehicles placed in service before or on April 17, 2023, the credit is calculated as a $2,500 base amount plus, for a vehicle which draws propulsion energy from a battery with at least 7 kilowatt hours of capacity, $417, plus an additional $417 for each kilowatt hour of battery capacity in excess of 5 kilowatt hours, up to an additional $5,000 beyond the base amount. In general, the minimum credit amount will be $3,751 ($2,500 + 3 * $417), representing the credit amount for a vehicle with the required minimum of 7 kilowatt hours of battery capacity.'

Topic H covers the Transfer of New Clean Vehicle Credit and Previously-Owned Clean Vehicles Credit. Q 1 defines the transfer election as allowing a taxpayer who buys a new clean vehicle or previously owned clean vehicle after Dec. 31, 2023, "to transfer the entirety of the allowable credit to an eligible entity (a registered dealer) in exchange for a financial benefit (i.e., reduced final cost) from the eligible entity equal to the amount of the credit, whether in cash, in the form of a partial payment, or down payment for the purchase of such vehicle. In short, the tax credit can be applied at the point of sale to reduce the cost of the purchase by the amount of the credit. Eligible taxpayers who purchase an eligible vehicle may choose to claim the tax credit on their return instead of transferring a new or previously-owned clean vehicle tax credit."