Maximizing the impact of 2024 EV credits
IRS Revenue Procedure 2023-33 provides guidance for the ability of a taxpayer to transfer a "clean vehicle" tax credit to an "eligible entity". You may wonder why someone would want do what appears to be giving away a tax credit. Here's why...
Overview of credit: purchasing a new electric vehicle may provide a taxpayer with up to a $7,500 tax credit. The vehicle can't cost more than a certain amount, and the taxpayer's income can't exceed a certain amount in order to be eligible.
Transferability of credit: Taxpayers can elect to transfer the credit to, say, the selling dealer. In return, the dealer would reduce the price of the vehicle for the same amount of the transferred credit.
Why transfer the credit?: The credit is "nonrefundable". For example, if the taxpayer's pre-credit tax liability is $5,000, the credit would reduce the liability to $0 and the rest of the $2,500 credit would go to waste. In such a case, the taxpayer can elect to transfer the $7,500 credit to the dealer in exchange for a $7,500 reduction in vehicle price. This effectively causes the taxpayer realize the full benefit of the credit. The dealer is OK with this since they will, in turn, be able to realize the full $7,500 tax credit and be made whole.
Note that this "strategy" can also be used for the purchase of used clean vehicles (the credit is less).
This is just a high level summary, so be sure to review the full scope of the rules before making a purchase to ensure your tax credit will be what you expect. Tax credit rues are constantly changing so you want to be sure you know the latest and greatest.