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1 [1] (December 26, 2024)

handle is hein.crs/goveruq0001 and id is 1 raw text is: a ~ Congressia: Informing the legi 4 Research Service ~tive debate since 1914 Updated December 26, 2024 Clean Vehicle Tax Credits The federal government currently offers three tax credits to incentivize the purchase of clean vehicles (electric vehicles, plug-in hybrid vehicles, and fuel cell vehicles). All three credits were created or substantially modified by P.L. 117- 169, the Inflation Reduction Act of 2022 (IRA). This In Focus summarizes each clean vehicle credit and provides a brief discussion of relevant economic policy considerations. Clean Vehc Credit (IC §30D) Taxpayers purchasing a qualifying new clean vehicle may claim a nonrefundable tax credit of up to $7,500 for vehicles acquired before the end of 2032. The maximum potential credit ($7,500) is the sum of two amounts: the critical mineral amount ($3,750) and the battery component amount ($3,750), which went into effect for vehicles acquired on or after April 18, 2023. (Fuel cell vehicles without batteries that meet other requirements are eligible for the full $7,500 credit, though fuel cell vehicles with batteries are subject to the bulleted rules below.) * To claim the critical mineral portion of the credit, a car's battery must have at least a certain percentage of its critical minerals that were extracted or processed in the United States or in a country with which the United States has a free trade agreement, or that were recycled in North America. The minimum percentage is 40% in 2023, 50% in 2024, 60% in 2025, 70% in 2026, and 80% thereafter. For vehicles acquired after 2024, no applicable critical minerals in the vehicle's battery may come from aforeign entity of concern (FEOC). * To claim the battery component portion of the credit, at least a certain percentage of an electric vehicle battery's component parts must be manufactured or assembled in North America. The minimum percentage is 50% in 2023, 60% in 2024 and 2025, 70% in 2026, 80% in 2027, 90% in 2028, and 100% thereafter. Furthermore, vehicles acquired after 2023 cannot use battery components manufactured or assembled by an FEOC. In addition to the critical minerals and battery component requirements, qualifying clean vehicles must meet other criteria. These additional criteria include a manufacturer's suggested retail price (MSRP) limit ($80,000 for vans, SUVs, and pickup trucks; $55,000 for other vehicles); a required gross vehicle weight rating (GVWR) of less than 14,000 pounds; and a battery capacity of at least 7 kilowatt hours. Additionally, all qualified vehicles must undergo final assembly in North America. To claim the credit, taxpayers' modified adjusted gross incomes (MAGIs) for either the current or previous year must be at or below certain thresholds: $300,000 for married couples, $150,000 for single filers, and $225,000 for heads of household. The clean vehicle credit is nonrefundable, meaning taxpayers may not claim credit amounts in excess of their tax liabilities. Since the beginning of 2024, taxpayers have been allowed to transfer their credits to vehicle dealers. Transferred credits may exceed taxpayers' income tax liabilities, effectively making transferred credits fully refundable. As a requirement for having received a transferred credit, dealers must compensate buyers with either a cash payment or a price reduction equal to the value of the credit. Taxpayers who transfer a credit but later exceed the MAGI limits must pay back the credit (to the IRS) when filing their taxes. Credkt for Previously Owned Clean Vehicles (IRC §25E) Taxpayers purchasing a qualifying previously owned clean vehicle may claim a nonrefundable tax credit equal to 30% of the vehicle's sales price, up to a maximum credit of $4,000. This credit is commonly referred to as the used clean vehicle credit. Qualifying used vehicles must be acquired before the end of 2032. The credit can only be claimed once per vehicle, and the vehicle must satisfy other criteria. The vehicle must be purchased from a licensed dealer for $25,000 or less, have a GVWR of less than 14,000 pounds, and have a battery capacity of at least 7 kilowatt hours. In addition, the vehicle's model year must be at least two years before the year of purchase, and the dealer must produce a report of the transaction for both the buyer and the IRS. Only taxpayers with MAGIs at or below $150,000 for married couples, $75,000 for single filers, and $112,500 for heads of household in either the current or previous year qualify for this tax credit. Taxpayers can claim the credit at most once every three years. Rules for credit transfers under the used clean vehicle credit are similar to those under the clean vehicle credit. Credit for Qualifed Commercial Clean Vehicdes (IC §45W) By purchasing a qualified clean vehicle, businesses and tax- exempt organizations can qualify for a tax credit of up to $40,000. For plug-in hybrid vehicles, the credit equals the lesser of the incremental cost of the vehicle (the difference between its price and the price of a gas- or diesel-powered vehicle of similar size and use) or 15% of the vehicle's cost basis. For electric vehicles and fuel cell vehicles, the credit equals the lesser of the incremental cost of the vehicle or 30% of its cost basis. The credit may not exceed $7,500 for vehicles with a GVWR of less than 14,000 pounds. The credit for qualified commercial clean vehicles can only be claimed once per vehicle and must satisfy multiple other criteria. The vehicle must be used for business purposes, be used primarily in the United States, have a battery capacity

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