Credits

<div class="Section1">Under the Inflation Reduction Act of 2022, the tax credit for new energy efficient homes under IRC Section 45L was extended through 2032 (and retroactively through 2022, although the pre-existing rules will continue to apply for 2022). The tax credit is designed to provide an incentive for builders of both residential homes and multi-family dwellings to use materials designed to reduce energy consumption.</div><br /> <div class="Section1"><br /> <br /> Beginning in 2023, the credit is also modified by increasing the maximum amount of the credit to either $2,500 or $5,000 (the prior maximum was $2,000 per unit). The new programs also eliminate the height restrictions, so that the previously-existing three-story or less requirement no longer applies beginning in 2023.<br /> <br /> Builders must satisfy certain energy-efficient criteria qualify for the $2,500 credit. Beginning in 2023, single-family homes must satisfy the requirements of the Department of Energy’s “Energy Star Single Family New Homes Program,” Version 3.1 for homes constructed before January 1, 2025 and Version 3.2 for later years. It is expected that additional details will be provided. Manufactured homes are required to satisfy the latest Energy Star Manufactured Home National Program requirements that are in effect on the later of (1) January 1, 2023 or January 1 of the year that is two calendar years prior to the date the dwelling is acquired.<br /> <br /> If the single-family or manufactured home is certified as a DOE Zero Energy Ready Home (ZERH) (or meets the requirements of a successor program implemented by the Department of Energy), a higher $5,000 credit is available.<br /> <br /> For multi-family dwellings, a $500 credit is available if the home satisfies the criteria of the Energy Star Single Family New Homes Program and a $1,000 credit is available if the building is ZERH certified.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> Builders must also satisfy prevailing wage standards beginning in 2023. To qualify, workers must be paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such residence is located as most recently determined by the Secretary of Labor.<br /> <br /> To qualify for the tax credit, the taxpayer must obtain an audit that provides an estimate of the energy and cost savings of each energy-efficient home improvement. Beginning in 2024, that audit must be conducted by a Qualified Home Energy Auditor, which is an auditor who has been certified by one of the certification programs listed by the Department of Energy on its certification programs page for the energy efficient home improvement credit. For 2023, a transition rule applies so that the auditor need not be a Qualified Home Energy Auditor.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> The IRS has also appropriated funds and authorized the Department of Energy to distribute funds to establish rebate programs for owners and occupants of residential property who engage in qualifying transactions under the law.  For tax purposes, a rebate paid to or on behalf of a purchaser pursuant to the DOE Home Energy Rebate Programs will be treated as a purchase price adjustment for the purchaser and is not taxable income.  For rebates provided at the time of sale, the amount of the rebate provided in connection with the DOE Home Energy Rebate Programs is not included in a purchaser’s cost basis under IRC Section 1012.  For rebates provided at a later time, the amount of the rebate constitutes an adjustment to basis under IRC Section 1016.  Payments of rebate amounts to the purchaser that are treated as a purchase price adjustment are not subject to information reporting under IRC Section 6041.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  IRC § 45L(c), as modified by Inflation Reduction Act § 13304.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.  Notice 2023-59.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>. A-24-19.<br /> <br /> </div>

<div class="Section1">The Lifetime Learning Credit is available to certain eligible taxpayers who pay qualified tuition and related expenses.<a href="#_ftn1" name="_ftnref1">¹</a><div class="Section1"><br /> <br /> The Lifetime Learning Credit is available in an amount equal to 20 percent of &ldquo;qualified tuition and related expenses&rdquo; (defined in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="761">761</a>) paid by the taxpayer during the taxable year for any course of instruction at an &ldquo;eligible educational institution&rdquo; (defined in Q <a href="javascript:void(0)" class="accordion-cross-reference" id="761">761</a>) taken to acquire or improve the job skills of the taxpayer, his spouse or dependents. The Lifetime Learning Credit is a per taxpayer credit and the maximum credit available does not vary with the number of students in the family. The maximum amount of the credit is $2,000 (20 percent of up to $10,000 of qualified tuition and related expenses).<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> Qualified tuition and related expenses, for the purposes of the Lifetime Learning Credit, include expenses for graduate as well as undergraduate courses. The Lifetime Learning Credit applies regardless of whether the individual is enrolled on a full-time, half-time, or less than half-time basis. Additionally, the Lifetime Learning Credit is available for an unlimited number of taxable years.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> Where taxpayers had pre-paid their child&rsquo;s tuition in November 2001 for the academic period that began during the first three months of the following taxable year (i.e., the spring semester of 2002), the prepayment amount was properly includable in the calculation of the taxpayers&rsquo; Lifetime Learning Credit for the 2001 taxable year, not the 2002 taxable year.<a href="#_ftn4" name="_ftnref4">⁴</a> See Q <a href="javascript:void(0)" class="accordion-cross-reference" id="761">761</a> for a discussion of the Hope Scholarship (American Opportunity) Credit and Q <a href="javascript:void(0)" class="accordion-cross-reference" id="763">763</a> for a discussion of the limitations and phaseouts that apply to both credits.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect; 25A.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; IRC &sect; 25A(c); Treas. Reg. &sect; 1.25A-4(a).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp; Treas. Reg. &sect;&sect;&nbsp;1.25A-4(b), 1.25A-4(c).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp; <em>Patel v. Commissioner</em>, TC Summ. Op. 2006-40.<br /> <br /> </div></div><br />

<div class="Section1"><em>Editor’s Note</em>: The credit for nonbusiness energy property initially expired on December 31, 2007, but has been revived by Congress several times. As of the date of this publication, this provision has been renamed, expanded and extended through 2032 by the Inflation Reduction Act of 2022. See heading below for details.<a href="#_ftn1" name="_ftnref1">¹</a></div><br /> <div class="Section1"><br /> <br /> An individual taxpayer may claim as a credit an amount equal to <em>the sum of</em>: (1) 10 percent of the amount paid or incurred by the taxpayer for “qualified energy efficiency improvements” (see below) installed during the taxable year; <em>and</em> (2) the amount of the “residential energy property expenditures” (see below) paid or incurred by the taxpayer during the taxable year.<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> <em>Qualified energy efficiency improvements</em> means any energy efficient “building envelope component” (see below) that meets certain energy conservation criteria, if: (1) the component is installed in or on a dwelling located in the United States that is owned and used by the taxpayer as his principal residence; (2) original use of the component commences with the taxpayer; <em>and</em> (3) the component reasonably can be expected to remain in use for at least five years.<a href="#_ftn3" name="_ftnref3">³</a> The term “building envelope component” means: (1) any insulation material or system specifically and primarily designed to reduce the heat loss or gain of a dwelling when installed in or on the dwelling; (2) exterior windows, including skylights; (3) exterior doors; and (4) metal roofs if the roof has appropriate coatings specifically and primarily designed to reduce the heat gain of the dwelling.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> In guidance, the Service clarified that a component will be treated as reasonably expected to remain in use for at least five years if the manufacturer offers, at no extra charge, at least a two-year warranty providing for repair or replacement of the component in the event of a defect in materials or workmanship. However, if the manufacturer does not offer such a warranty, all relevant facts and circumstances are taken into account in determining whether the component reasonably can be expected to remain in use for at least five years. The Service also confirmed that a taxpayer may rely on a manufacturer’s certification that a building envelope component is an “eligible building envelope component.” A taxpayer is not required to attach the certification to the tax return on which the credit is claimed, but should retain the certification statement as part of his records. In addition, the Service stated that a credit is allowed <em>only</em> for amounts paid or incurred to purchase the components, <em>not</em> for the onsite preparation, assembly, or original installation of the components.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> <em>Residential energy property expenditures</em> means expenditures made by the taxpayer for “qualified energy property” that is: (1) installed on or in connection with a dwelling unit located in the United States and owned and used by the taxpayer as the taxpayer’s principal residence; <em>and</em> (2) originally placed in service by the taxpayer.<a href="#_ftn6" name="_ftnref6">⁶</a> The term “qualified energy property” means: (1) “energy-efficient building property” (see below); (2) a qualified natural gas, propane, oil furnace or hot water boiler; or (3) an advanced main air circulating fan. All of the types of property listed in the preceding sentence must meet certain performance and quality standards.<a href="#_ftn7" name="_ftnref7">⁷</a> “Energy efficient building property” means: (1) electric heat pump water heaters; (2) electric heat pumps; (3) geothermal heat pumps; (4) central air conditioners; and (5) natural gas, propane, or oil water heaters.<a href="#_ftn8" name="_ftnref8">⁸</a><br /> <br /> The Service has confirmed that a taxpayer may rely on a manufacturer’s certification that a product is “qualified energy property.” A taxpayer is not required to attach the certification to the tax return on which the credit is claimed, but should retain the certification statement as part of his records. In addition, the Service stated that a credit is allowed for amounts paid or incurred to purchase qualified energy property <em>and</em> for expenditures for labor costs allocable to the onsite preparation, assembly, or original installation of the property.<a href="#_ftn9" name="_ftnref9">⁹</a> The Service has issued additional guidance regarding the credit.<a href="#_ftn10" name="_ftnref10">¹⁰</a><br /> <br /> Prior to 2023, the lifetime limitation with respect to any taxpayer for any taxable year was $500.<a href="#_ftn11" name="_ftnref11">¹¹</a> An additional limit of $200 applied to windows.<a href="#_ftn12" name="_ftnref12">¹²</a> Other limits were as follows: advanced main air circulating fans – $50; qualified natural gas, propane, oil furnace or hot water boilers – $150; and energy-efficient building property – $300.<a href="#_ftn13" name="_ftnref13">¹³</a><br /> <br /> The credit is available for property placed in service after December 31, 2005, and before January 1, 2008, and in 2009 through 2021. (See Editor’s Note above and the discussion of the Inflation Reduction Act below for details on the credit’s expansion beginning in 2023.)<a href="#_ftn14" name="_ftnref14">¹⁴</a><br /> <p style="text-align: center;"><strong>Inflation Reduction Act of 2022</strong></p><br /> The Inflation Reduction Act renamed the pre-existing IRC Section 25C nonbusiness energy property tax credit the “Energy Efficient Home Improvement Credit.” While the nonbusiness energy property tax credit technically expired at the end of 2021, the bill retroactively extended the existing credit through 2022. Beginning in 2023, the new and expanded Energy Efficient Home Improvement Credit is available through the 2032 tax year.<br /> <br /> However, beginning with the 2023 tax year, the credit will be expanded to equal to 30% of the costs of eligible home improvements made during the year. Home improvements such as insulation, roofing, windows and other energy-efficient home improvements will continue to be covered under the new rules if they satisfy certain energy rating standards. The credit will also be expanded to cover the cost of additional energy-efficient property, including electric panels and related equipment, biomass stoves and home-energy auditing. Roofing and air-circulating fans will be removed from the list of qualifying improvements.<br /> <br /> The existing lifetime limits will be replaced with a more generous $1,200 annual limit and the $200 limitation for windows will be eliminated entirely.<br /> <br /> The annual limits for specific types of qualifying home improvements will also be modified beginning in 2023. The new limits will be:<br /> <p style="padding-left: 40px;">(1)  $2,000 for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, biomass stoves and boilers,</p><br /> <p style="padding-left: 40px;">(2)  $600 for central air conditioners, exterior windows and skylights, electric panels and related equipment, natural gas, propane or oil water heaters, natural gas, propane or oil furnaces or hot water boilers,</p><br /> <p style="padding-left: 40px;">(3)  $250 for exterior doors (with a cap of $500 for all exterior doors installed) and</p><br /> <p style="padding-left: 40px;">(4)  $150 for home energy audits.</p><br /> The tax credit applies in the year the project is installed—and installations must meet certain energy-related standards and criteria, which can vary from project to project (it is expected that future regulations will provide more specific details). The credit isn’t refundable—meaning that it cannot generate a tax refund—but the credit can be carried forward to subsequent tax years to offset future tax liability.<a href="#_ftn15" name="_ftnref15">¹⁵</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>. IRC § 25C(g), as amended by EIEA 2008, ARRA, ATRA, the Bipartisan Budget Act of 2018, and FCAA 2020.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>. IRC § 25C(a).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>. IRC § 25C(c)(1).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>. IRC § 25C(c)(2).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>. Notice 2006-26, 2006-11 IRB 622.<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>. IRC § 25C(d)(1).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>. IRC § 25C(d)(2).<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>. IRC § 25C(d)(3).<br /> <br /> <a href="#_ftnref9" name="_ftn9">9</a>. Notice 2006-26, 2006-11 IRB 622.<br /> <br /> <a href="#_ftnref10" name="_ftn10">10</a>.  Notice 2006-71, 2006-34 IRB 316 (clarifying the effective dates); Notice 2006-53, 2006-25 IRB 1180 (clarifying that exterior siding does not qualify as an eligible building envelope component).<br /> <br /> <a href="#_ftnref11" name="_ftn11">11</a>.  IRC § 25C(b)(1).<br /> <br /> <a href="#_ftnref12" name="_ftn12">12</a>.  IRC § 25C(b)(2).<br /> <br /> <a href="#_ftnref13" name="_ftn13">13</a>.  IRC § 25C(b)(3).<br /> <br /> <a href="#_ftnref14" name="_ftn14">14</a>.  IRC § 25C(g), as amended by FCAA 2020.<br /> <br /> <a href="#_ftnref15" name="_ftn15">15</a>.  IRC § 25C, as modified by Inflation Reduction Act § 13301.<br /> <br /> </div>

<div class="Section1"><em>Editor&rsquo;s Note:</em> <em>See</em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="767">767</a> for information on the expanded tax credit for clean vehicles under the Inflation Reduction Act.<div class="Section1"><br /> <br /> The alternative motor vehicle credit is equal to the <em>sum</em> of: (A) the new qualified fuel cell motor vehicle credit; (B) the new advanced lean burn technology motor vehicle credit; (C) the new qualified hybrid vehicle credit; (D) the new qualified alternative motor vehicle credit; and (E) the plug-in conversion credit.<a href="#_ftn1" name="_ftnref1">¹</a> (This credit replaces the prior deduction for qualified clean-fuel vehicle property, which sunset on December 31, 2005.)<a href="#_ftn2" name="_ftnref2">²</a><br /> <br /> (A) The new qualified fuel cell motor vehicle credit is based on the weight of the vehicle, and ranges from $8,000 (8,500 pounds maximum) to $40,000 (over 26,000 pounds).<a href="#_ftn3" name="_ftnref3">³</a> The amount determined above with respect to a passenger automobile or light truck is <em>increased</em> if the vehicle achieves certain fuel efficiencies, ranging from $1,000 to $4,000.<a href="#_ftn4" name="_ftnref4">⁴</a> The credit for passenger automobiles and light trucks can be as much as $12,000.<br /> <br /> The term &ldquo;new qualified fuel cell motor vehicle&rdquo; means a motor vehicle: (1) propelled by power derived from one or more fuel cells that convert chemical energy directly into electricity by combining oxygen with hydrogen fuel that is stored on board the vehicle in any form and may or may not require reformation prior to use; (2) that, in the case of a passenger vehicle or light truck, has received a certificate that the vehicle meets certain emission levels; (3) the original use of which begins with the taxpayer; (4) that is acquired for use or lease by the taxpayer and not for resale; and (5) that is made by a manufacturer.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> (B) The amount of the new advanced lean burn technology motor vehicle credit is based on fuel economy, and ranges from $400 to $2,400. The amount of the credit is <em>increased</em> by the conservation credit (based on lifetime fuel savings), and ranges from $250 to $1,000.<a href="#_ftn6" name="_ftnref6">⁶</a> The credit for passenger automobiles and light trucks can be as much as $3,400.<br /> <br /> The term &ldquo;advanced lean burn technology motor vehicle&rdquo; means a passenger automobile or light truck: (1) with an internal combustion engine that (i) is designed to operate primarily using more air than is necessary for complete combustion of the fuel, (ii) incorporates direct injection, (iii) achieves at least 125 percent of the 2002 model year city fuel economy, and<br /> (iv) for 2004 and later model vehicles, has received a certificate that the vehicle meets or exceeds certain emission standards; (2) the original use of which begins with the taxpayer; (3) is acquired for use or lease by the taxpayer and not for resale; and (4) is made by a manufacturer.<a href="#_ftn7" name="_ftnref7">⁷</a><br /> <br /> (C) The new qualified hybrid motor vehicle credit amount is determined as follows:<br /> (1) If the new qualified hybrid motor vehicle is a passenger automobile or light truck weighing no more than 8,500 pounds, the credit amount is the sum of the fuel economy amount and the conservation credit (<em><em>see</em></em> (B), above).<a href="#_ftn8" name="_ftnref8">⁸</a> (2) For other motor vehicles, the credit amount is equal to the applicable percentage of the &ldquo;qualified incremental hybrid cost&rdquo; (i.e., the excess of the manufacturer&rsquo;s suggested retail price for such vehicle over the price for a comparable gas or diesel powered vehicle) of the vehicle as certified.<a href="#_ftn9" name="_ftnref9">⁹</a> The credit for passenger automobiles and light trucks can be as much as $3,400.<br /> <br /> A &ldquo;new qualified hybrid motor vehicle&rdquo; means a motor vehicle that: (1) draws propulsion energy from onboard sources of stored energy that are both (i) an internal combustion or heat engine using consumable fuel, and (ii) a rechargeable energy storage system; (2) has been certified as meeting specified emission standards; (3) has maximum available power meeting certain percentages based on weight; (4) the original use of which begins with the taxpayer;<br /> (5) is acquired for use or lease by the taxpayer; and (6) is made by a manufacturer.<a href="#_ftn10" name="_ftnref10">¹⁰</a><br /> <br /> (D) The new qualified alternative fuel motor vehicle credit is an amount equal to the applicable percentage of the incremental cost of any new qualified alternative fuel motor vehicle.<a href="#_ftn11" name="_ftnref11">¹¹</a> The &ldquo;applicable percentage&rdquo; is 50 percent, plus 30 percent if the vehicle has been certified as meeting certain emission standards.<a href="#_ftn12" name="_ftnref12">¹²</a> The &ldquo;incremental cost&rdquo; (i.e., the excess of the manufacturer&rsquo;s suggested retail price for the vehicle over the price for a gas or diesel powered vehicle of the same model) cannot exceed $5,000 to $40,000 based on the weight of the vehicle.<a href="#_ftn13" name="_ftnref13">¹³</a><br /> <br /> &ldquo;New qualified alternative fuel motor vehicle&rdquo; means any motor vehicle: (1) that is only capable of operating on an alternative fuel; (2) the original use of which begins with the taxpayer; (3) is acquired by the taxpayer for use or lease but not for resale; and (4) is made by a manufacturer.<a href="#_ftn14" name="_ftnref14">¹⁴</a> &ldquo;Alternative fuel&rdquo; means compressed natural gas, liquefied natural gas, liquefied petroleum gas, hydrogen, and any liquid at least 85 percent of the volume of which consists of methanol.<a href="#_ftn15" name="_ftnref15">¹⁵</a><br /> <p style="text-align: center;"><strong>Certifications and Limitations for Hybrid Vehicles</strong></p><br /> <em>Certifications</em>. The tax credit for hybrid vehicles may be as much as $3,400 for those who purchase the most fuel-efficient vehicles. (For the guidance used by manufacturers in certifying credit amounts, <em><em>see</em></em> Notice 2006-9.)<a href="#_ftn16" name="_ftnref16">¹⁶</a> The Service cautions that even though a manufacturer has certified a vehicle, taxpayers must meet the following requirements to qualify for the credit:<br /> <p style="padding-left: 40px;">(1)&nbsp; The vehicle must be placed in service after December 31, 2005, and purchased on or before December 31, 2009.<a href="#_ftn17" name="_ftnref17">¹⁷</a></p><br /> <p style="padding-left: 40px;">(2)&nbsp; The original use of the vehicle must begin with the taxpayer claiming the credit.</p><br /> <p style="padding-left: 80px;">(a)&nbsp; The credit may only be claimed by the original owner of a new, qualifying, hybrid vehicle and does not apply to a used hybrid vehicle.</p><br /> <p style="padding-left: 40px;">(3)&nbsp; The vehicle must be acquired for use or lease by the taxpayer claiming the credit.</p><br /> <p style="padding-left: 80px;">(a)&nbsp; The credit is only available to the original purchaser of a qualifying hybrid vehicle. If a qualifying vehicle is leased to a consumer, the leasing company may claim the credit.</p><br /> <p style="padding-left: 80px;">(b)&nbsp; For qualifying vehicles used by a tax-exempt entity, the person who sold the qualifying vehicle to the person or entity using the vehicle is eligible to claim the credit, but only if the seller clearly discloses in a document to the tax-exempt entity the amount of credit.</p><br /> <p style="padding-left: 40px;">(4)&nbsp; The vehicle must be used predominantly within the United States.</p><br /> <em>Limitations</em>. There is a limit on the number of new qualified hybrid and advanced lean burn technology vehicles eligible for the credit. The phaseout period begins with the second calendar quarter following the calendar quarter that includes the first date on which the number of qualified vehicles manufactured by the manufacturer is at least 60,000.<a href="#_ftn18" name="_ftnref18">¹⁸</a> The Service publishes notices providing the adjusted credit amount based on the actual number of vehicles sold for the applicable quarter.<br /> <br /> <em>Effective dates</em>. The credits are in effect as follows: new qualified fuel cell motor vehicle credit (2006-2021);<a href="#_ftn19" name="_ftnref19">¹⁹</a> (B) new advanced lean burn technology motor vehicle credit (2006-2010); (C) new qualified hybrid vehicle credit (2006-2009); and (D) new qualified alternative fuel motor vehicle credit (2006-2010).<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;IRC &sect; 30B(a).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;See &sect; 1348, ETIA 2005; IRC &sect; 179A.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;IRC &sect; 30B(b)(1).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp;IRC &sect; 30B(b)(2).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp;IRC &sect; 30B(b)(3).<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.&nbsp;IRC &sect; 30B(c)(2).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.&nbsp;IRC &sect; 30B(c)(3).<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>.&nbsp;IRC &sect; 30B(d)(2)(A).<br /> <br /> <a href="#_ftnref9" name="_ftn9">9</a>.&nbsp;IRC &sect; 30B(d)(2)(B).<br /> <br /> <a href="#_ftnref10" name="_ftn10">10</a>.&nbsp;&nbsp;IRC &sect; 30B(d)(3).<br /> <br /> <a href="#_ftnref11" name="_ftn11">11</a>.&nbsp;&nbsp;IRC &sect; 30B(e)(1).<br /> <br /> <a href="#_ftnref12" name="_ftn12">12</a>.&nbsp;&nbsp;IRC &sect; 30B(e)(2).<br /> <br /> <a href="#_ftnref13" name="_ftn13">13</a>.&nbsp;&nbsp;IRC &sect; 30B(e)(3).<br /> <br /> <a href="#_ftnref14" name="_ftn14">14</a>.&nbsp;&nbsp;IRC &sect; 30B(e)(4)(A).<br /> <br /> <a href="#_ftnref15" name="_ftn15">15</a>.&nbsp;&nbsp;IRC &sect; 30B(e)(4)(B).<br /> <br /> <a href="#_ftnref16" name="_ftn16">16</a>.&nbsp;&nbsp;2006-6 IRB 413.<br /> <br /> <a href="#_ftnref17" name="_ftn17">17</a>.&nbsp;&nbsp;IRC &sect; 30B(k)(3).<br /> <br /> <a href="#_ftnref18" name="_ftn18">18</a>.&nbsp;&nbsp;IRC &sect; 30B(f).<br /> <br /> <a href="#_ftnref19" name="_ftn19">19</a>.&nbsp; IRC 30B(k)(1) as amended by FCAA 2020.<br /> <br /> </div></div><br />

<div class="Section1">The credit is available to taxpayers age 65 or older, <em>or</em> those who are under age 65, retired on disability, and were considered permanently and totally disabled when they retired.<a href="#_ftn1" name="_ftnref1">¹</a></div><br /> <div class="Section1"><br /> <blockquote>“An individual is permanently and totally disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than<br /> 12 months. An individual shall not be considered to be permanently and totally disabled unless he furnishes proof of the existence thereof in such form and manner, and at such times, as the Secretary may require.”<a href="#_ftn2" name="_ftnref2">²</a></blockquote><br /> The credit equals 15 percent of an individual’s IRC Section 22 amount for the taxable year, but may not exceed the amount of tax. This IRC Section 22 base amount is $5,000 for a single taxpayer or married taxpayers filing jointly if only one spouse qualifies for the credit; $7,500 for married taxpayers filing jointly if both qualify; and $3,750 for a married taxpayer filing separately.<a href="#_ftn3" name="_ftnref3">³</a> Married taxpayers must file a joint return to claim the credit, unless they lived apart for the entire taxable year.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> This base figure is limited for individuals under age 65 to the amount of the disability income (taxable amount an individual receives under an employer plan as wages or payments in lieu of wages for the period he is absent from work on account of permanent and total disability) received during the taxable year.<a href="#_ftn5" name="_ftnref5">⁵</a> (Proof of continuing permanent and total disability may be required.)<a href="#_ftn6" name="_ftnref6">⁶</a> For married taxpayers who are both qualified and who file jointly, the base figure cannot exceed the total of both spouses’ disability income if both are under age 65 or if only one is under age 65, the sum of $5,000 plus the disability income of the spouse who is under 65.<a href="#_ftn7" name="_ftnref7">⁷</a><br /> <br /> The base figure (or the amount of disability income in the case of individuals under age 65, if lower) is reduced dollar-for-dollar by one-half of adjusted gross income in excess of $7,500 (single taxpayers), $10,000 (joint return), or $5,000 (married filing separately).<a href="#_ftn8" name="_ftnref8">⁸</a> A reduction is also made for Social Security and railroad retirement benefits that are excluded from gross income, and certain other tax-exempt income.<a href="#_ftn9" name="_ftnref9">⁹</a><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>. IRC § 22(b).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>. IRC § 22(e)(3).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>. IRC § 22(c).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>. IRC § 22(e)(1).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>. IRC § 22(c)(2)(B)(i).<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>. GCM 39269 (8-2-84).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>. IRC § 22(c)(2)(B)(ii).<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>. IRC § 22(d).<br /> <br /> <a href="#_ftnref9" name="_ftn9">9</a>. IRC § 22(c)(3).<br /> <br /> </div>

<div class="Section1">The Hope Scholarship (American Opportunity) Credit is available to certain eligible taxpayers who pay qualified tuition and related expenses.<a href="#_ftn1" name="_ftnref1">¹</a><div class="Section1"><br /> <br /> The Hope Scholarship (American Opportunity) Credit provides a credit for each <em>eligible student</em> equal to the sum of: (1) 100 percent of qualified tuition and related expenses up to $2,000; plus (2) 25 percent of qualified tuition and related expenses in excess of $2,000, up to the applicable limit. The applicable limit ($4,000) is two times the $2,000 amount.<a href="#_ftn2" name="_ftnref2">²</a> AARA 2009 increased the credit amounts for 2009 and 2010 (later extended through 2012 and again early in 2013 by the American Taxpayer Relief Act of 2012 (&ldquo;ATRA&rdquo;) through 2017. This treatment was made permanent by the Protecting Americans from Tax Hikes Act of 2015 (PATH)).<a href="#_ftn3" name="_ftnref3">³</a> In earlier years, the amounts used to calculate the credit were adjusted for inflation and rounded to the next lowest multiple of $100.<a href="#_ftn4" name="_ftnref4">⁴</a> The maximum credit is now $2,500 ($2,000 + (25 percent&nbsp;&times; $2,000).<br /> <br /> The credit is available for four years of postsecondary education (this provision was made permanent by PATH and applies for 2009 and thereafter), and can be used in only four taxable years.<a href="#_ftn5" name="_ftnref5">⁵</a> To qualify for the credit, the student must carry at least half of a full-time academic workload for an academic period during the taxable year.<a href="#_ftn6" name="_ftnref6">⁶</a><br /> <br /> An <em>eligible student</em> generally means a student who: (1) for at least one academic period beginning in the calendar year, is enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential and is enrolled in one of the first four years of postsecondary education (two years prior to 2009), and (2) is free of any conviction for federal or state felony offenses consisting of the possession of a controlled substance.<a href="#_ftn7" name="_ftnref7">⁷</a><br /> <br /> <em>Qualified tuition and related expenses</em> are tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer&rsquo;s spouse, or any dependent of the taxpayer (for whom he is allowed a dependency exemption) at an &ldquo;eligible education institution.&rdquo;<a href="#_ftn8" name="_ftnref8">⁸</a> Qualified tuition and related expenses do not include nonacademic fees such as room and board, medical expenses (including required student health fees), transportation, student activity fees, athletic fees, insurance expenses, and similar personal, living or family expenses unrelated to a student&rsquo;s academic course of instruction.<a href="#_ftn9" name="_ftnref9">⁹</a> Additionally, qualified tuition and related expenses do not include expenses for a course involving sports, games or hobbies, unless it is part of the student&rsquo;s degree program.<a href="#_ftn10" name="_ftnref10">¹⁰</a> AARA 2009 expanded qualified tuition and related expenses to include required course materials, and PATH made this provision permanent.<br /> <br /> An <em>eligible educational institution</em> generally means a postsecondary educational institution that: (a) provides an educational program for which it awards a bachelor&rsquo;s degree, or a two-year program that would be accepted for credit towards a bachelor&rsquo;s degree; (b) has at least a one year program that trains students for gainful employment in a recognized profession; (c) participates in a federal financial aid program under Title IV of the Higher Education Act of 1965 or is certified by the Department of Education as eligible to participate in such a program; or (d) meets requirements for certain postsecondary vocational, proprietary institutions of higher learning and certain institutions outside the United States. In any event, the institution must also be accredited or have been granted pre-accreditation status.<a href="#_ftn11" name="_ftnref11">¹¹</a><br /> <br /> An <em>academic period</em> means a quarter, semester, trimester or other period of study (such as summer school session) as reasonably determined by an eligible educational institution.<a href="#_ftn12" name="_ftnref12">¹²</a> See Q <a href="javascript:void(0)" class="accordion-cross-reference" id="763">763</a> for a discussion of the limitations and phaseouts applicable to the American Opportunity Credit.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;IRC &sect; 25A.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;IRC &sect;&sect; 25A(b)(1), 25A(b)(4); Treas. Reg. &sect; 1.25A-3(a).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;ATRA, &sect; 103.<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp;IRC &sect; 25A(h)(1).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp;Treas. Reg. &sect; 1.25A-3(c).<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.&nbsp; &nbsp;IRC &sect; 25A(b)(2); Treas. Reg. &sect; 1.25A-3(d)(ii).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.&nbsp;IRC &sect; 25A(b)(3); Notice 97-60, 1997-2 CB 310 (&sect; 1, A3); Treas. Reg. &sect; 1.25A-3(d)(1).<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>.&nbsp;Treas. Reg. &sect; 1.25A-2(d)(1).<br /> <br /> <a href="#_ftnref9" name="_ftn9">9</a>.&nbsp;Treas. Reg. &sect; 1.25A-2(d)(3).<br /> <br /> <a href="#_ftnref10" name="_ftn10">10</a>.&nbsp;&nbsp;IRC &sect; 25A(f)(1); Treas. Reg. &sect; 1.25A-2(d)(5).<br /> <br /> <a href="#_ftnref11" name="_ftn11">11</a>.&nbsp;&nbsp;IRC &sect; 25A(f)(2); HEA 1965 &sect; 481; Treas. Reg. &sect; 1.25A-2(b).<br /> <br /> <a href="#_ftnref12" name="_ftn12">12</a>.&nbsp; Treas. Reg. &sect; 1.25A-2(c).<br /> <br /> </div></div><br />

<div class="Section1"><em>Editor&rsquo;s Note:</em> for tax years beginning after December 31, 2020, the Hope Scholarship (American Opportunity) and Lifetime Learning Credits are phased out for taxpayers with modified adjusted gross income (MAGI) in excess of $80,000 ($160,000 for joint returns). The phaseout range is not adjusted for inflation for tax years beginning after December 31, 2020.<div class="Section1"><br /> <br /> The Code sets forth special rules coordinating the interaction of the Hope Scholarship (American Opportunity) and Lifetime Learning Credits. The Lifetime Learning Credit is not available with respect to a student for whom an election is made to take the Hope Scholarship Credit during the same taxable year.<a href="#_ftn1" name="_ftnref1">¹</a> However, the taxpayer may use the American Opportunity Credit for one student and the Lifetime Learning Credit for other students in the same taxable year.<br /> <br /> Both credits are subject to the same phaseout rules based on the taxpayer&rsquo;s MAGI. MAGI is the taxpayer&rsquo;s adjusted gross income without regard to the exclusions for income derived from certain foreign sources or sources within United States possessions. The maximum credit in each case is reduced by the credit multiplied by a ratio. Prior to 2021, for single taxpayers, the ratio equals the excess of (i) the taxpayers&rsquo; MAGI over $40,000 to (ii) $10,000. For married taxpayers filing jointly, the ratio equals (a) the excess of the taxpayer&rsquo;s MAGI over $80,000 to (b) $20,000.<a href="#_ftn2" name="_ftnref2">²</a> The $40,000 and $80,000 amounts are adjusted for inflation and rounded to the next lowest multiple of $1,000.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> For 2020, the threshold amounts were $59,000 for single taxpayers and $118,000 for married taxpayers filing jointly for the Lifetime Learning Credit. For 2019, the threshold amounts were $58,000 for single taxpayers and $116,000 for married taxpayers filing jointly. For 2018, the threshold amounts were $57,000 for single taxpayers and $114,000 for married taxpayers filing jointly. The threshold amounts for the American Opportunity Credit are $160,000 for married taxpayers filing jointly and $80,000 for single taxpayers for tax years after 2020.<br /> <br /> The amount of qualified tuition and related expenses for both credits is limited by the sum of the amounts paid for the benefit of the student, such as scholarships, education assistance advances, and payments (other than a gift, bequest, devise, or inheritance) received by an individual for educational expenses attributable to enrollment.<a href="#_ftn4" name="_ftnref4">⁴</a> The IRS has determined that qualified tuition and related expenses paid with distributions of educational benefits from a trust could be used to compute American Opportunity and Lifetime Learning Credits if the distributions were included in the taxable income of the beneficiaries.<a href="#_ftn5" name="_ftnref5">⁵</a><br /> <br /> Neither credit is allowed unless a taxpayer elects to claim it on a timely filed (including extensions) federal income tax return for the taxable year in which the credit is claimed. The election is made by completing and attaching Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits), to the return.<a href="#_ftn6" name="_ftnref6">⁶</a> Neither credit is allowed unless the taxpayer provides the name and the taxpayer identification (i.e., Social Security) number of the student for whom the credit is claimed.<a href="#_ftn7" name="_ftnref7">⁷</a><br /> <br /> If the student is claimed as a dependent on another individual&rsquo;s tax return (e.g., parents) he cannot claim either credit for himself, even if he paid the expenses himself.<a href="#_ftn8" name="_ftnref8">⁸</a> (The Service has privately ruled that a student was entitled to claim a Hope Scholarship Credit on his own return even though his parents were eligible to claim him as a dependent, but chose not to do so.<a href="#_ftn9" name="_ftnref9">⁹</a>) However, if another individual is eligible to claim the student as a dependent, but does not do so, only the student may claim the Hope or Lifetime Learning Credit for his own qualified tuition and related expenses.<a href="#_ftn10" name="_ftnref10">¹⁰</a> Both credits are unavailable to married taxpayers filing separately.<a href="#_ftn11" name="_ftnref11">¹¹</a> Neither of these credits is allowed for any expenses for which there is a deduction available.<a href="#_ftn12" name="_ftnref12">¹²</a> Taxpayers are not eligible to claim an American Opportunity or Lifetime Learning Credit and the deduction for qualified higher education expenses in the same year with respect to the same student.<a href="#_ftn13" name="_ftnref13">¹³</a><br /> <br /> A taxpayer may claim an American Opportunity or Lifetime Learning Credit <em>and</em> exclude distributions from a qualified tuition program on behalf of the same student in the same taxable year <em>if</em> the distribution is not used to pay the same educational expenses for which the credit was claimed.<a href="#_ftn14" name="_ftnref14">¹⁴</a> See Q <a href="javascript:void(0)" class="accordion-cross-reference" id="687">687</a>.<br /> <br /> A taxpayer can claim an American Opportunity or Lifetime Learning Credit <em>and</em> exclude distributions from a Coverdell Education Savings Account (ESA &ndash; see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="681">681</a>) on behalf of the same student in the same taxable year <em>if</em> the distribution is <em>not</em> used to pay the same educational expenses for which the credit was claimed.<a href="#_ftn15" name="_ftnref15">¹⁵</a> A taxpayer may elect <em>not</em> to have the American Opportunity or Lifetime Learning Credit apply with respect to the qualified higher education expenses of an individual for any taxable year.<a href="#_ftn16" name="_ftnref16">¹⁶</a><br /> <br /> <em>Reporting</em>. For the reporting requirements for higher education tuition and related expenses, see IRC Section 6050S.<a href="#_ftn17" name="_ftnref17">¹⁷</a> For the reporting requirements for qualified tuition and related expenses, see Treasury Regulation Section 1.6050S-1; TD 9029.<a href="#_ftn18" name="_ftnref18">¹⁸</a><br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;IRC &sect; 25A(c)(2)(A); Treas. Reg. &sect; 1.25A-1(b).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;IRC &sect; 25A(d); Treas. Reg. &sect; 1.25A-1(c).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;IRC &sect; 25A(h)(2); Treas. Reg. &sect; 1.25A-1(c)(3).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp;IRC &sect; 25A(g)(2); Treas. Reg. &sect; 1.25A-5(c).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp;Let. Rul. 9839037.<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.&nbsp;Treas. Reg. &sect; 1.25A-1(d).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.&nbsp;Treas. Reg. &sect; 1.25A-1(e).<br /> <br /> <a href="#_ftnref8" name="_ftn8">8</a>.&nbsp;IRC &sect; 25A(g)(3); Treas. Reg. &sect; 1.25A-1(f)(1).<br /> <br /> <a href="#_ftnref9" name="_ftn9">9</a>.&nbsp;Let. Rul. 200236001.<br /> <br /> <a href="#_ftnref10" name="_ftn10">10</a>.&nbsp;&nbsp;Treas. Reg. &sect; 1.25A-1(f)(1).<br /> <br /> <a href="#_ftnref11" name="_ftn11">11</a>.&nbsp;&nbsp;IRC &sect; 25A(g)(6); Treas. Reg. &sect; 1.25A-1(g).<br /> <br /> <a href="#_ftnref12" name="_ftn12">12</a>.&nbsp;&nbsp;IRC &sect; 25A(g)(5); Treas. Reg. &sect; 1.25A-5(d).<br /> <br /> <a href="#_ftnref13" name="_ftn13">13</a>.&nbsp;&nbsp;IRC &sect; 222(c)(2)(A).<br /> <br /> <a href="#_ftnref14" name="_ftn14">14</a>.&nbsp;&nbsp;IRC &sect; 529(c)(3)(B)(v).<br /> <br /> <a href="#_ftnref15" name="_ftn15">15</a>.&nbsp;&nbsp;IRC &sect; 530(d)(2)(C).<br /> <br /> <a href="#_ftnref16" name="_ftn16">16</a>.&nbsp;&nbsp;IRC &sect; 25A(e).<br /> <br /> <a href="#_ftnref17" name="_ftn17">17</a>.&nbsp;&nbsp;As amended by P.L. 107-131 (1-16-2002).<br /> <br /> <a href="#_ftnref18" name="_ftn18">18</a>.&nbsp; 67 Fed. Reg. 77678 (12-19-02). <em><em>See also</em></em> Notice 2006-72, 2006-36 IRB 363.<br /> <br /> </div></div><br />

<div class="Section1"><em>Editor&rsquo;s Note:</em> The Inflation Reduction Act also renamed the existing residential energy efficient property credit the &ldquo;Residential Clean Energy Credit.&rdquo; The new law expanded the parameters of the credit and extended it through 2034. See Q <a href="javascript:void(0)" class="accordion-cross-reference" id=""></a>.<div></div><div>An individual taxpayer may claim as a credit an amount equal to <em>the sum of</em> 30 percent of the following expenditures made by the taxpayer during the taxable year: (1) &ldquo;qualified solar electric property&rdquo; (see below); (2) &ldquo;qualified solar water heating property&rdquo; (see below); (3) &ldquo;qualified fuel cell property&rdquo; (see below); (4) qualified small wind energy property (see below); and (5) qualified geothermal heat pump property (see below).<a href="#_ftn1" name="_ftnref1">¹</a> Solar water heating property must be certified in order for the credit to be claimed.<a href="#_ftn2" name="_ftnref2">²</a> The Protecting Americans from Tax Hikes Act of 2015 (PATH) modified the applicable percentage used to determine the amount of the credit for tax years after 2019. In 2020, the applicable percentage was reduced to 26 percent, and was scheduled to decrease to 23 percent by 2023. The Inflation Reduction Act modified these percentage limits so that the credit amount increases to</div><div class="Section1"><br /> <br /> 30 percent from 2022 to 2032. It then decreases to 26 percent for 2033 and 22 percent for 2034. The credit is set to expire after 2034.<br /> <br /> &ldquo;Qualified solar water heating property expenditure&rdquo; means an expenditure for property to heat water for use in a dwelling unit located in the United States and used as a residence by the taxpayer if at least half of the energy used by such property for such purpose is derived from the sun. The term &ldquo;qualified solar electric property expenditure&rdquo; means an expenditure for property which uses solar energy to generate electricity for use in a dwelling unit located in the United States and used as a residence by the taxpayer. &ldquo;Qualified fuel cell property expenditure&rdquo; means an expenditure for qualified fuel cell property (as defined in IRC Section 48(c)(1)) installed on or in connection with a dwelling unit located in the United States and used as a principal residence by the taxpayer. &ldquo;Qualified small wind energy property expenditure&rdquo; means an expenditure for property which uses a wind turbine to generate electricity for use in connection with a dwelling unit located in the United States and used as a residence by the taxpayer. &ldquo;Qualified geothermal heat pump property expenditure&rdquo; means an expenditure for qualified geothermal heat pump property installed on or in connection with a dwelling unit located in the United States and used as a residence by the taxpayer.<a href="#_ftn3" name="_ftnref3">³</a><br /> <br /> A special rule provides that expenditures allocable to a swimming pool, hot tub, or any other energy storage medium that has a function other than the function of storage cannot be taken into account for these purposes.<a href="#_ftn4" name="_ftnref4">⁴</a><br /> <br /> The maximum credit allowed for any taxable years before 2009 cannot exceed $2,000 with respect to qualified solar water heating property expenditures, $500 with respect to each half kilowatt of capacity of qualified fuel cell property (as defined in section 48(c)(1)) for which qualified fuel cell property expenditures are made, $500 with respect to each half kilowatt of capacity (not to exceed $4,000) of wind turbines for which qualified small wind energy property expenditures are made, and $2,000 with respect to any qualified geothermal heat pump property expenditures.<a href="#_ftn5" name="_ftnref5">⁵</a> For tax years starting in 2009, the only remaining limit is the $500 limit for each half-kilowatt of capacity of fuel cell plants. The unused portion of the credit can be carried forward to the succeeding taxable year.<a href="#_ftn6" name="_ftnref6">⁶</a><br /> <br /> The credit is generally available for property placed in service after December 31, 2005 and before January 1, 2024.<a href="#_ftn7" name="_ftnref7">⁷</a> The reduced rates prescribed by PATH apply to property placed into service after 2016 under the Bipartisan Budget Act of 2018.<br /> <br /> Under the Inflation Reduction Act of 2022, the credit will no longer be allowed for biomass furnaces or water heaters. It will be expanded to include battery storage technology that has a capacity of not less than three kilowatt hours.<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp; IRC &sect; 25D(a).<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp; IRC &sect; 25D(b)(2).<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp; IRC &sect; 25D(d).<br /> <br /> <a href="#_ftnref4" name="_ftn4">4</a>.&nbsp; IRC &sect; 25D(e)(3).<br /> <br /> <a href="#_ftnref5" name="_ftn5">5</a>.&nbsp; IRC &sect; 25D(b).<br /> <br /> <a href="#_ftnref6" name="_ftn6">6</a>.&nbsp; IRC &sect; 25D(c).<br /> <br /> <a href="#_ftnref7" name="_ftn7">7</a>.&nbsp; <em><em>See</em></em> &sect; 1333, Energy Policy Act of 2005; IRC &sect; 25D(g).<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> <em>Editor’s Note:</em> The Inflation Reduction Act expanded and extended the clean vehicle tax credit for tax years beginning after 2022. The rules discussed immediately below applied for vehicles placed in service during 2022.<br /> <br /> The ARRA modified the credit for qualified plug-in electric drive vehicles purchased after December 31, 2009. To qualify, vehicles must be newly purchased, have four or more wheels, have a gross vehicle weight rating of less than 14,000 pounds, and draw propulsion using a battery with at least four kilowatt hours that can be recharged from an external source of electricity. The minimum amount of the credit for qualified plug-in electric drive vehicles is $2,500 and the credit tops out at $7,500, depending on the battery capacity. The full amount of the credit will be reduced with respect to a manufacturer’s vehicles after the manufacturer has sold at least 200,000 vehicles.<a href="#_ftn1" name="_ftnref1">¹</a><br /> <br /> ARRA also creates a special tax credit for two types of plug-in vehicles—certain low-speed electric vehicles and two- or three-wheeled vehicles. The amount of the credit is 10 percent of the cost of the vehicle, up to a maximum credit of $2,500 for purchases made after February 17, 2009, and before January 1, 2014. The Protecting Americans from Tax Hikes Act extended this credit for two-wheeled vehicles through 2016, and BBA 2018 extended the credit through 2017. To qualify, a vehicle must be either a low speed vehicle propelled by an electric motor that draws electricity from a battery with a capacity of 4 kilowatt hours or more or be a two- or three-wheeled vehicle propelled by an electric motor that draws electricity from a battery with the capacity of 2.5 kilowatt hours. A taxpayer may not claim this credit if the plug-in electric drive vehicle credit is allowable.<br /> <p style="text-align: center;"><strong>Inflation Reduction Act</strong></p><br /> The Inflation Reduction Act expands the electric vehicle tax credit for electric vehicles placed into service after December 31, 2022 for ten years, through 2032. Taxpayers who buy qualifying vehicles will qualify for a tax credit of up to $7,500 for new vehicles.<br /> <br /> For used electric vehicles, the maximum credit will equal $4,000 or 30% of the vehicle’s cost, whichever is less. Used electric vehicles only qualify if they’re purchased for personal use, rather than for resale.<br /> <br /> <hr /><br /> <br /> <strong>Planning Point</strong>: Not every electric vehicle will qualify for the clean vehicle credits—meaning that it might be confusing when clients attempt to purchase a clean vehicle. However, the Department of Transportation has provided an online tool so that consumers can enter the vehicle identification number (VIN) to determine whether they would be eligible to claim the credit after purchase.  Sellers of clean vehicles will also furnish seller reports that provide information necessary to claim the credit and verify that the vehicle in question qualifies.<br /> <br /> <hr /><br /> <br /> The exact amount of the available credit will depend on various factors, including whether minerals in the vehicle’s battery are sourced from qualifying countries and where the vehicle is assembled. Taxpayers who purchase a vehicle where 40% of the critical minerals used in the battery are sourced from a qualifying country could be eligible for a $3,750 tax credit. Beginning in 2023, 50% of the battery’s components must be assembled or manufactured in North America to qualify for the remaining $3,750 credit.<br /> <br /> <hr /><br /> <br /> <strong><strong>Planning Point:</strong></strong> The percentage limitations will increase over time, which could make it more difficult to find a qualifying vehicle unless manufacturers modify their processes.<br /> <br /> <hr /><br /> <br /> The clean vehicle tax credit itself was also expanded so that it covers more types of vehicles, to include any new qualified fuel cell motor vehicle. The term “qualifying plug-in electric driver motor” in IRC Section 30D was replaced with the term “clean”. That means qualifying vehicles are expanded to include more than qualified plug-in electric drive vehicles, so that, for example, hydrogen cell fuel cars will qualify.<br /> <br /> To claim the tax credit, the taxpayer must include the vehicle’s VIN number on their tax return for the year. The expanded tax credit applies to vehicles placed into service after 2022 (note that clients who have written binding contracts in 2022 will qualify if the vehicle is placed into service in 2023). If the vehicle was purchased in 2022, the old rules for claiming the credit applied.<br /> <br /> Taxpayers must ensure that the vehicle was assembled by a qualified manufacturer. Qualified manufacturers are those that enter into approved agreements with the IRS and supply the IRS with VIN numbers that can be matched to the VIN reported on a taxpayer’s return.<br /> <br /> <em>Income Limits and Restrictions</em>. The newly expanded electric vehicle tax credits are intended to provide benefits for lower- and middle-income clients. As such, they come with income restrictions and limitations. The credit is unavailable for single taxpayers who earn more than $150,000 per year, joint filers who earn more than $300,000 per year and heads-of-households who earn $225,000 per year or more.<br /> <br /> Certain luxury electric vehicles are also excluded. If the manufacturer’s suggested retail price (MSRP) on an SUV, van or truck is over $80,000, the purchaser is not entitled to the credit. The credit is unavailable if the MSRP on a car is over $55,000. If the vehicle was used (defined as at least two years old), the cost of the pre-owned vehicle cannot exceed $25,000.<br /> <br /> There are also restrictions on where the vehicle was manufactured. To qualify, final assembly of the clean vehicle must have occurred in North America. That requirement is effective as of August 16, 2022 (the date the Inflation Reduction Act was signed into law). Further, a certain amount of the minerals used in the vehicle’s battery must be sourced from North America or certain other countries that have free trade agreements with the U.S.<br /> <br /> The term “final assembly” is defined to mean the process by which a manufacturer produces a new clean vehicle at, or through the use of, a plant, factory, or other place from which the vehicle is delivered to a dealer or importer with all component parts necessary for the mechanical operation of the vehicle included with the vehicle, whether or not the component parts are permanently installed in or on the vehicle.<br /> <br /> Starting in 2023, however, existing sales caps will be removed so that automakers who currently offer electric vehicles can produce more electric vehicles. Prior to the Inflation Reduction Act, manufacturers that produced more than 200,000 electric vehicles did not qualify for the credit.<br /> <br /> <hr /><br /> <br /> <strong><strong>Planning Point:</strong></strong> Not every electric vehicle will qualify for the clean vehicle credits—meaning that it might be confusing when clients attempt to purchase a clean vehicle. However, the Department of Transportation has provided an online tool so that consumers can enter the vehicle identification number (VIN) to determine whether they would be eligible to claim the credit after purchase. Sellers of clean vehicles will also furnish seller reports that provide information necessary to claim the credit and verify that the vehicle in question qualifies.<br /> <br /> <hr /><br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.  IRC § 30D.<br /> <br /> </div>

<div class="Section1"><br /> <br /> Under the Inflation Reduction Act of 2022 (the IRA), eligible taxpayers are entitled to transfer certain green energy tax credits in exchange for cash payments. Under IRC Section 6418, eligible taxpayers are permitted to transfer either the entire value of an eligible tax credit or a portion of the tax credit to unrelated taxpayers. “Eligible taxpayers” include any taxpayers other than tax-exempt organizations, a State or political subdivision thereof, the Tennessee Valley Authority, an Indian tribal government, an Alaska Native Corporation, or a corporation operating on a cooperative basis engaged in furnishing electric energy to parties in rural areas.<br /> <br /> Credits that can be transferred under the IRA include: (1) the Alternative Fuel Vehicle Refueling Property credit (IRC Section 30C), (2) the Renewable Energy Production credit (IRC Section 45), (3) the Carbon Oxide Sequestration credit (IRC Section 45Q), (4) the Zero-Emission credit, (5) the Nuclear Power Production credit (IRC Section 45U), (6) the Clean Hydrogen Production credit (IRC Section 45V), (7) the credit for Qualified Commercial Vehicles (IRC Section 45W), (8) the Advanced Manufacturing Production credit (IRC Section 45X), (9) the Clean Electricity Production credit (IRC Section 45Y), (10) the Clean Fuel Production credit (IRC Section 45Z), (11) the Energy Investment credit (IRC Section 48), (12) the Qualifying Advanced Energy Investment credit (IRC Section 48C) and (13) the Clean Electricity Investment credit (IRC Section 48E).<br /> <br /> <hr /><br /> <br /> <strong>Planning Point:</strong> Because the previously existing rules required complex tax, legal and accounting planning (which, of course, generated substantial costs), many investors avoided engaging in these credit transfer transactions. The new transfer provisions are designed to provide an alternative to allow developers to attract investors and capital with the goal of generating additional funds to expand clean technology production. The direct transfer provisions could also be beneficial to smaller or mid-sized project developers.<br /> <br /> <hr /><br /> <br /> Under IRC Section 6418, taxpayers can elect to transfer all or a portion of eligible tax credits. Under IRS proposed regulations,<a href="#_ftn1" name="_ftnref1">¹</a> taxpayers must transfer the base credit and any bonus credits together (using proportionate shares in cases involving partial transfers).<br /> <br /> All consideration for the transfer must be paid in cash. IRS proposed regulations provide a safe harbor rule so that the cash requirement will not be violated if the payment is made within the period that begins on the first day of the taxpayer’s tax year when the eligible credit is determined and ends on the due date for the transfer election statement. Taxpayers are entitled to contract in advance for selling the credits, as long as the cash payment is actually made during the safe harbor period.<br /> <br /> Amounts received on the sale of eligible tax credits are not taxable income to the taxpayer selling the credit. The credit’s purchaser likewise is not able to deduct amounts paid for the tax credit. Buyers who pay less than the credit’s value do not include the “profit” in their gross income. While the buyer does not have to apply certain rules that apply in determining the credit (such as the at-risk rules), it is required to apply rules that apply based on the taxpayer’s circumstances (for example, the passive activity rules).<br /> <br /> Each tax credit (or portion thereof) can only be transferred one time (subsequent transfers by the purchaser are not permitted).<br /> <br /> If the credit is held by a partnership or S corporation, the election is made at the entity level and the amount received is treated as tax-exempt income for purposes of IRC Sections 705 and 1366. The partner’s distributive share of the tax-exempt income is based on the partner’s distributive share of the otherwise eligible credit for each tax year.<br /> <br /> An election to claim the credit must be made by the due date (including extensions) of the tax return for the tax year in which the tax credit is determined. The election itself is irrevocable.<br /> <br /> Once transferred, the credits are subject to a three-year carryback and 22-year carryforward.<br /> <br /> </div><br /> <div class="refs"><br /> <br /> <hr align="left" size="1" width="33%" /><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>. See IRS FAQ, available at <a href="https://www.irs.gov/credits-deductions/elective-pay-and-transferability-frequently-asked-questions-transferability">https://www.irs.gov/credits-deductions/elective-pay-and-transferability-frequently-asked-questions-transferability</a>.<br /> <br /> </div>