IRA Section 13401 – Clean Vehicle Credit

Section 13401 of the IRA modifies the tax credit for clean vehicles established in section 30D of the IRC. Beginning in 2023, in order for an electric vehicle to qualify for the credit, the battery used in the vehicle must meet certain requirements. First, a vehicle will qualify for a credit of $3,750 if at least 40% of the value of the battery’s applicable critical minerals were extracted or processed in the U.S. or another country with which the U.S. has a free trade agreement, or recycled in North America. Second, a vehicle will qualify for an additional credit of $3,750 if at least 50% of the battery’s components were manufactured or assembled in North America. The minimum percentages increase over time. Moreover, starting in 2024, a vehicle cannot qualify for the credit if any of its battery components were manufactured or assembled by a foreign entity of concern. Starting in 2025, a vehicle cannot qualify for the credit if any of the critical minerals in its battery were extracted, processed, or recycled by a foreign entity of concern. The Secretary of Treasury must issue proposed regulations or other guidance with respect to the critical mineral and battery component conditions by December 31, 2022.

Section 13401 of the IRA also removes the previous cap on the number of vehicles that could qualify for the clean vehicle credit. There are, however, new limits based on the income of the purchaser and the price of the vehicle. For example, the credit is not available for sport utility vehicles, pickup trucks, and vans with a manufacturer’s suggested retail price above $80,000, or other vehicles with a suggested retail price above $55,000. The credit will expire on December 31, 2032.

Starting in 2024, taxpayers will be able to elect to transfer credits to dealers, thus allow the credit to be a point of sale rebate. The Treasury Department must establish a program to make advance payments to registered dealers.