Starting in January Inflation Reduction Act Provision Will Allow Consumers to Transfer Credit to Car Dealer, Reducing Purchase Price of New and Previously Owned Clean Vehicles at Time of Sale, Car Dealers Must Register with IRS to Receive Payments
WASHINGTON – As part of Bidenomics and the Biden-Harris Administration’s Investing in America agenda, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) today began allowing car dealers to register for the IRS Energy Credits Online portal. This is a key step in implementing a provision of the Inflation Reduction Act that will lower costs for consumers and help car dealers grow their businesses by increasing access to tax credits at point of sale for new and previously owned clean vehicles.
Researchers have found that consumers overwhelmingly prefer an immediate rebate at point of sale. Starting January 1, 2024, consumers will be able to choose to transfer their new clean vehicle credit of up to $7,500 and their previously owned clean vehicle credit of up to $4,000 to a registered car dealer. This provision of the Inflation Reduction Act (IRA) will effectively lower the vehicle’s purchase price by providing consumers with 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. Only vehicles purchased under the consumer clean vehicle credits are eligible for this benefit.
The new Energy Credits Online portal will allow registered dealers to submit clean vehicle sales information to the IRS and promptly receive payment for transferred credits. Dealers will also use Energy Credits Online to submit “time of sale” reports, which will confirm vehicles’ eligibility for a credit, whether or not the buyer chooses to transfer the credit to the dealer. Energy Credits Online demonstrates the IRS’ commitment to delivering a world-class customer service experience and helping taxpayers receive the credits and deductions they are eligible for. A modern tax administration system is key to achieving the economic, energy security, and climate goals of the Inflation Reduction Act.
“President Biden’s Investing in America agenda is focused on lowering transportation costs for consumers and giving American auto dealers, workers, and companies the tools they need to lead the world on the next generation of vehicles,” said Chief Implementation Officer for the Inflation Reduction Act Laurel Blatchford. “For the first time, the Inflation Reduction Act allows consumers to reduce the up-front cost of a clean vehicle, expanding consumer choice and helping car dealers grow their businesses. The IRS has focused on streamlining this process for car dealers as part of its commitment to improving service and helping taxpayers claim credits they are eligible for. With the opening of Energy Credits Online, Treasury is ramping up its outreach to car dealers to ensure they are aware of this new opportunity to bring in new customers.”
When a buyer chooses to transfer the credit, registered dealers will reduce the purchase price of the vehicle or provide cash to the buyer. The amount provided must equal the full amount of the credit available for the eligible vehicle. When completing the sale, the dealer will electronically submit information regarding the transfer, including a time of sale report, to receive an advance payment for the value of the credit. The IRS expects to issue advance payments within 72 hours.
To provide clarity and certainty, the dealer will provide buyers with required disclosures as part of the credit transfer and electronic time-of-sale submission process and with written confirmation that the vehicle they’re buying is eligible for a credit and the credit amount.
Guidance released on October 6 proposed rules regarding who is eligible to elect to transfer the credit to the dealer, and under what circumstances these taxpayers may have to pay back some of the transferred credit. This guidance also would include important safeguards to help prevent fraud or abuse, ensuring that only verified, tax-compliant dealers get the benefit of advance payments from the IRS, and that only eligible vehicles get the benefit of the credit. Specifically, under these proposed rules the IRS would collect and verify information received from the dealer during the Energy Credits Online registration process. A registration ID would be provided to the dealer only once the IRS is confident in the registration’s validity.
The guidance would also provide clarity regarding federal income tax treatment of the transferred credit and advance payment for the buyer and the dealer. Under the proposed rules, credit transfers and advance payments would generally not affect dealers’ tax liability. Payment of the value of the transferred credit by the dealer to the consumer would be treated as repaid by the consumer to the dealer as part of the purchase price of the vehicle, and therefore be treated as an amount realized by the dealer.
Advance payments received by the dealer would not be treated as a tax credit to the dealer and may exceed the dealer’s regular tax liability. Advance payments received by the dealer would not be includable in the gross income of the dealer. The payment made by the dealer to the consumer in exchange for the transferred credit would not be deductible by the dealer. The payment made by the dealer to the consumer (in the form of a cash payment, down payment, or partial down payment) would also not be includable in the gross income of the consumer.
Treasury will make fact sheets, FAQs, checklists and other materials for consumers and dealers available before the end of the year to help all parties take advantage of this important benefit. Treasury will also partner with external organizations on stakeholder outreach and webinars to raise awareness.
For a full list of the Treasury Department’s work to implement the Inflation Reduction Act, see below:
May 31, 2023: U.S. Departments of Treasury and Energy Release Additional Guidance on Inflation Reduction Act Programs to Incentivize Manufacturing and Clean Energy Investments in Hard-Hit Coal Communities
September 27, 2023: U.S. Department of the Treasury, U.S. Department of Energy, IRS Announce Date for Opening of Applications for Investing in America Program to Spur Clean Energy Investments in Underserved Communities