Clean Energy Tax Credits: Understanding the Tax Aspects

Starting January 1, 2024, taxpayers who purchase qualifying clean energy vehicles can transfer their tax credits to the dealer at the time of sale to reduce the vehicle's cost. The IRS has now provided guidance on how these elective transfers will impact tax liability for both taxpayers and dealers. The short answer is: they won't. The amounts received by the buyer (whether in cash or in the form of a down payment) are not included in the buyer’s income. The amounts are simply treated as an advance payment of the allowable tax credit. However, the basis of the vehicle must be reduced by the amount of the advance credit. The advance payment of the credit is not included in the dealer's income, but the dealer also cannot deduct the amount transferred. The amounts are treated as though the buyer paid the amounts to the dealer as part of the purchase price of the vehicle and will be realized by the dealer in the same way as any other method of purchase. For more information on the Inflation Reduction Act's green energy tax credits, visit Tax Facts Online. : Q 767. Note: Q is updated.