Tax credits are better than deductions because credits provide a dollar-for-dollar reduction of tax you owe.
But sometimes, getting a credit’s benefit in a real-life cash-flow situation is better than the financial results at tax filing time. That’s the case, for example, in making a major consumer purchase, like a car.
And that’s why the Treasury Department and Internal Revenue Service last year issued guidance on the Biden Administration’s Inflation Reduction Act clean vehicle provisions to help buyers of qualifying energy-efficient autos get immediate use of the credit.
Under the rules, eligible vehicle buyers can transfer their new clean vehicle credit — which could be as much as $7,500 — or their previously owned clean vehicle credit — a tax break of up to $4,000 — to the dealer where they buy the vehicle.
This transfer effectively lower the vehicle’s purchase price by the credit amount, essentially giving consumers an upfront down payment on their clean vehicle at the point of sale, rather than having to wait to claim their credit on their tax return the next year.
Immediate car purchase savings: This credit option began on Jan. 1, 2024.
Last week, Treasury announced that since this credit transfer took effect five-and-a-half months ago, clean vehicle buyers have saved more than $1 billion in up-front costs on more than 150,000 qualifying vehicles.
Of the total advance credit payments issued since Jan. 1, more than 125,000 were for tax credits related to new clean vehicles.
“This milestone translates to consumers saving $1,750 annually on average on fuel and maintenance costs, or $21,000 of discounted savings over the typical 15-year lifespan of a vehicle, compared to a comparable gasoline vehicle,” according to the Treasury Department announcement of the tax credit transfer mark.
“For the more than 150,000 vehicle sales that have used the upfront discount to date, this equates to around $262 million annually on fuel and maintenance costs, and up to $3.2 billion in costs over the life of the vehicles,” according to the statement.
That’s a lot of large dollar amount calculations by Treasury, but for this weekend’s By the Numbers honor, I’m going with the billion-plus bucks total saved by clean vehicle buyers at dealerships.
I admit that I probably was swayed a bit by my personal auto-buying experiences. Anything that saves money, and time, in this too-often painful process is a winner in my book.
Credit background: The mechanism to transfer the $7,500 maximum credit for qualifying new clean vehicles and up to $4,000 for previously-owned eco-friendly vehicles to registered dealers is part of the Inflation Reduction Act.
It basically makes the credit available when the consumer buys the vehicle, rather than making them collect it the next at tax-filing time. The move was based on the totally unsurprising data showing that consumers overwhelmingly prefer an immediate rebate at the time of purchase to claiming a credit later.
That research is borne out in the recent clean vehicle credit transfer stats.
Treasury reports that more than 90 percent of new clean vehicle transactions and approximately 80 percent of used clean vehicle transactions reported through IRS Energy Credits Online have involved a transfer of the credit to the dealer.
Clean car credit rules: If the tax credit, along with the ability to use it to buy a qualifying clean vehicle, has you thinking about a trip to your local electric vehicle (EV) auto dealership, you’ll want to do a little pre-purchase planning first.
The IRS has on online page dedicated to clean vehicle tax credits. There’s more in IRS Publication 5905, Information for Consumers Purchasing a New or Used Clean Vehicle, and Publication 5866, New Clean Vehicle Tax Credit Checklist.
The Department of Energy also has an online clean vehicle tax credit checklist. And the Department of Energy has an online search tool where you can check out tax-credit eligible vehicles.
Dealership difficulties: As for the dealerships, this could take some time.
Late last December, Treasury said around 7,400 dealers have signed up to provide the EV tax credit at the time of sale. But finding one in your area might not be easy.
There are anecdotal reports of dealers saying they offer the up-front credit transfer, but don’t follow through. Would-be EV buyers say when they initially inquire via phone, they’re told “sure, we do that,” but when get to the dealership they’re told “sorry, we don’t actually do that.”
Unfortunately, I’ve yet to find a good searchable online database of participating auto dealers. So be prepared for added exploration time. Have a couple of dealerships in mind before you head out. Ask again about the up-front credit before the sales/purchase process starts. If a dealer hesitates, go to the next one.
And here’s a taxpayer-friendly thought for the IRS.
Since on its online page for clean vehicle sellers/dealerships, the IRS notes that a participating business’ first step is to register on IRS Energy Credits, the IRS might want to consider making available a list of such registered dealerships for potential buyers to peruse.
You also might find these items of interest:
- Gasoline tax considerations for Memorial Day travel
- Texas joins the electric vehicle fee club on Sept. 1, 2023
- Odometer check time and other business mileage tax basics
- 2 federal projects announced to improve EV charging options
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