§ 1.25E-1 - Credit for previously-owned clean vehicles.

§ 1.25E-1 Credit for previously-owned clean vehicles.

(a) In general. Section 25E(a) of the Internal Revenue Code (Code) allows as a credit against the tax imposed by chapter 1 of the Code (chapter 1) for the taxable year of a taxpayer an amount equal to the lesser of $4,000, or the amount equal to 30 percent of the sale price of a previously-owned clean vehicle, if that previously-owned clean vehicle is placed in service during the taxable year by a taxpayer that acquired the previously-owned clean vehicle in a qualified sale in which that taxpayer is a qualified buyer. This section provides definitions and generally applicable rules that apply for purposes of determining the credit under section 25E and the section 25E regulations (section 25E credit). Section 1.25E-2 provides special rules under section 25E(e) and other special rules with respect to the section 25E credit. Section 1.25E-3 provides rules under section 25E(f).

(b) Definitions. The definitions in this paragraph (b) apply for purposes of section 25E and the section 25E regulations.

(1) Advance payment program. Advance payment program means advance payment program as defined in § 1.25E-3(b)(1).

(2) Credit transfer election. Credit transfer election means credit transfer election as defined in § 1.25E-3(b)(2).

(3) Dealer. Dealer has the meaning provided in section 25E(c)(2)(A) by reference to section 30D(g)(8) of the Code, except that the term does not include persons licensed solely by a territory of the United States, and includes a dealer licensed by any jurisdiction described in section 30D(g)(8) (other than one licensed solely by a territory of the United States) that makes sales at sites outside of the jurisdiction in which it is licensed.

(4) Dealer tax compliance. Dealer tax compliance means dealer tax compliance as defined in § 1.25E-3(b)(3).

(5) Electing taxpayer. Electing taxpayer means electing taxpayer as defined in § 1.25E-3(b)(4).

(6) Eligible entity. Eligible entity means eligible entity as defined in § 1.25E-3(b)(5).

(7) Excessive payment. Excessive payment means excessive payment as defined in § 1.25E-3(g)(2)(iii).

(8) Incentive —

(i) For purposes of sale price. For purposes of the definition of sale price in § 1.25E-1(b)(16), incentive means any reduction in price offered to and accepted by a taxpayer from the dealer or manufacturer, other than a reduction in the form of a partial payment or down payment for the purchase of a previously-owned clean vehicle pursuant to section 25E(f) and § 1.25E-3.

(ii) For purposes of eligible entity requirements. For purposes of the eligible entity requirements for a credit transfer election pursuant to sections 25E(f) and 30D(g)(2)(B) and (D), incentive means any reduction in price offered to the taxpayer by the dealer or manufacturer of the previously-owned clean vehicle, including in combination with other incentives, other than a reduction in the form of a partial payment or down payment for the purchase of a previously-owned clean vehicle pursuant to section 25E(f) and § 1.25E-3.

(9) Modified adjusted gross income. Modified adjusted gross income means adjusted gross income (as defined in section 62 of the Code) increased by any amount excluded from gross income under section 911, 931, or 933 of the Code.

(10) Placed in service. A previously-owned clean vehicle is considered to be placed in service on the date the taxpayer takes possession of the vehicle.

(11) Previously-owned clean vehicle. Previously-owned clean vehicle has the meaning provided in section 25E(c)(1). Vehicles that may qualify as previously-owned clean vehicles include battery electric vehicles, plug-in hybrid electric vehicles, fuel cell motor vehicles, and plug-in hybrid fuel cell motor vehicles.

(12) Qualified buyer. Qualified buyer means, with respect to a sale of a motor vehicle, a taxpayer—

(i) Who is an individual;

(ii) Who purchases such vehicle for use and not for resale;

(iii) With respect to whom no deduction is allowable to another taxpayer under section 151 of the Code; and

(iv) Who has not been allowed a credit under section 25E and this section for any sale during the three-year period beginning three years before the date of the sale of such vehicle and ending on the date of the sale of such vehicle.

(13) Qualified manufacturer. Qualified manufacturer means qualified manufacturer as defined in § 1.30D-2(b)(42).

(14) Qualified sale. Qualified sale means a sale of a motor vehicle—

(i) By a dealer;

(ii) For a sale price that does not exceed $25,000; and

(iii) That is a sale to a qualified buyer (other than the person with whom the original use of such vehicle commenced), and that is the first transfer of the motor vehicle since August 16, 2022 (other than a transfer to a dealer).

(15) Registered dealer. Registered dealer means registered dealer as defined in § 1.25E-3(b)(6).

(16) Sale price. The sale price of a previously-owned clean vehicle means the total price agreed upon by the taxpayer and dealer in a written contract at the time of sale, including any delivery charges and after the application of any incentives. The sale price of a previously-owned clean vehicle does not include separately stated taxes and fees required by State or local law. The sale price of a previously-owned clean vehicle is determined before the application of any trade-in value.

(17) Section 25E regulations. Section 25E regulations means this section and §§ 1.25E-2 and 1.25E-3.

(18) Seller report. Seller report means the report described in section 25E(c)(1)(D)(i) by reference to section 30D(d)(1)(H) that the seller of a previously-owned clean vehicle provides to the taxpayer and the IRS in the manner provided in, and containing the information described in, guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter). The seller report must be transmitted to the IRS electronically. The term seller report does not include a report rejected by the IRS due to the information contained therein not matching IRS records.

(19) Time of sale. Time of sale means time of sale as defined in § 1.25E-3(b)(7).

(20) Vehicle history report. Vehicle history report means a report that provides the ownership history of a motor vehicle. Vehicle history report includes a vehicle history report issued by a data provider approved by the National Motor Vehicle Title Information System.

(c) Limitation based on modified adjusted gross income —

(1) In general. Under section 25E(b)(1), no section 25E credit is allowed for any taxable year if—

(i) The lesser of—

(A) The modified adjusted gross income of the taxpayer for such taxable year, or

(B) The modified adjusted gross income of the taxpayer for the preceding taxable year, exceeds

(ii) The threshold amount.

(2) Threshold amount. For purposes of section 25E(b)(1) and paragraph (c)(1) of this section, the threshold amount is determined based on the taxpayer's return filing status for the taxable year, as set forth in paragraphs (c)(2)(i) through (iii) of this section. See section 25E(b)(2).

(i) In the case of a joint return or a surviving spouse (as defined in section 2(a) of the Code), the threshold amount is $150,000.

(ii) In the case of a head of household (as defined in section 2(b)), the threshold amount is $112,500.

(iii) In the case of a taxpayer not described in paragraph (c)(2)(i) or (ii) of this section, the threshold amount is $75,000.

(3) Special rule for change in filing status. If the taxpayer's filing status for the taxable year differs from the taxpayer's filing status in the preceding taxable year, then the taxpayer satisfies the limitation in section 25E(b)(1) and paragraph (c)(1) of this section if the taxpayer's modified adjusted gross income does not exceed the threshold amount in either year based on the applicable filing status for that taxable year.

(d) Credit may be claimed on only one tax return —

(1) In general. The amount of the section 25E credit attributable to a previously-owned clean vehicle may be claimed on only one Federal income tax return, including on a joint return for which one of the spouses is listed on the seller report. In the event a previously-owned clean vehicle is placed in service by multiple taxpayers who do not file a joint return, such as married individuals filing separate returns, no allocation or proration of the section 25E credit is available.

(2) Seller reporting. The name and taxpayer identification number of the taxpayer claiming the section 25E credit must be listed on the seller report pursuant to sections 25E(c)(1)(D)(i) and 30D(d)(1)(H). The credit will be allowed only on the Federal income tax return of the taxpayer listed in the seller report.

(e) Examples. The following examples illustrate the application of the rules in this section.

(1) Example 1: First transfer since enactment of section 25E. On August 1, 2022, a dealer sells a previously-owned vehicle that satisfies the requirements of section 25E(c)(1)(A), (B), and (D). On May 7, 2024, a dealer sells the vehicle to a qualified buyer, X, for a sale price of $24,000. X places the vehicle in service the same day. The May 7, 2024, sale to X is the first transfer of the vehicle since the enactment of section 25E.. The May 7, 2024, sale is a qualified sale pursuant to section 25E(c)(2) and paragraph (b)(14) of this section. As a result, the vehicle also satisfies the requirement of section 25E(c)(1)(C) and is a previously-owned clean vehicle as defined in section 25E(c)(1) and paragraph (b)(11) of this section.

(2) Example 2: Multiple transfers since enactment of section 25E. On July 1, 2023, a dealer sells a previously-owned vehicle that satisfies the requirements of section 25E(c)(1)(A), (B), and (D) to an individual, X, for a sale price of $30,000. X places the vehicle in service the same day. This is the first transfer of the vehicle since the enactment of section 25E. On May 7, 2024, a dealer sells the vehicle to an individual, Y, for a sale price of $24,500. The July 1, 2023, sale of the vehicle to X is not a qualified sale because the sale price exceeds the $25,000 limitation described in section 25E(c)(2)(B) and paragraph (b)(14) of this section. The May 7, 2024, sale to Y is not a qualified sale because it is not the first transfer since the enactment of section 25E.

(3) Example 3: Multiple transfers; commercial purchaser. The facts are the same as in paragraph (e)(2) of this section (Example 2), except that X is a partnership and the July 1, 2023, sale is for a sale price of $24,000. Although the vehicle is a previously-owned clean vehicle as defined in section 25E(c)(1) and paragraph (b)(11) of this section, no section 25E credit is allowed in relation to the sale because X is not a qualified buyer. The May 7, 2024, sale to Y is not a qualified sale because it is not the first transfer since enactment of section 25E.

(4) Example 4: Multiple transfers; buyer exceeds modified adjusted gross income limitation. The facts are the same as in paragraph (e)(2) of this section (Example 2), except the July 1, 2023, sale is for a sale price of $24,000 and X's modified adjusted gross income exceeds the limitation described in section 25E(b)(2) and paragraph (c) of this section. No section 25E credit is allowed in relation to the July 1, 2023, sale to X because X's modified adjusted gross income exceeds the limitation described in section 25E(b)(2) and paragraph (c) of this section. The May 7, 2024, sale to Y is not a qualified sale because it is not the first transfer since the enactment of section 25E.

(5) Example 5: Multiple transfers; buyer elects to not take credit. The facts are the same as in paragraph (e)(2) of this section (Example 2), except the July 1, 2023, sale is for a sale price of $24,000 and X elects to not claim the section 25E credit. The May 7, 2024, sale to Y is not a qualified sale because it is not the first transfer since the enactment of section 25E.

(6) Example 6: Multiple transfers; sale between dealers. On July 1, 2023, a dealer, D1, sells a previously-owned vehicle that satisfies the requirements of section 25E(c)(1)(A), (B), and (D) to another dealer, D2, for $18,000. D1 and D2 are not individuals. On August 1, 2024, D2 sells the vehicle to an individual, Y, for a sale price of $24,500. Y places the vehicle in service the same day. Y satisfies the modified adjusted gross income limitation in section 25E(b)(2) and paragraph (c) of this section. The July 1, 2023, sale to D2 is ignored because it is a transfer between dealers. Further, with regard to the July 1, 2023, sale, D2 is not a qualified buyer because D2 is not an individual. The May 7, 2024, sale to Y is a qualified sale because it is the first transfer that is regarded since the enactment of section 25E.

(f) Reliance on vehicle history report for purposes of determining whether sale is a qualified sale. A taxpayer may rely on a vehicle history report obtained on the date of sale or as part of the sale transaction to determine whether the requirements of section 25E(c)(2)(C) and paragraph (b)(14) of this section are satisfied, including in the case where there has been a prior sale and return or resale described in § 1.25E-2(c).

(g) Severability. The provisions of this section are separate and severable from one another. If any provision of this section is stayed or determined to be invalid, it is the agencies' intention that the remaining provisions shall continue in effect.

(h) Applicability date. This section applies to previously-owned clean vehicles placed in service after December 31, 2022, in taxable years ending after October 10, 2023.

[T.D. 9995, 89 FR 37747, May 6, 2024]