§ 1.25E-2 - Special rules.

§ 1.25E-2 Special rules.

(a) In general. This section provides guidance under section 25E(e) of the Internal Revenue Code (Code), which incorporates rules similar to the rules of section 30D(f) of the Code, other than section 30D(f)(10) or 30D(f)(11). Unless otherwise provided in this section, the rules of section 30D(f) apply to section 25E and the section 25E regulations in the same manner by replacing, if applicable, any reference to section 30D or the section 30D credit with a reference to section 25E or the section 25E credit. This section also provides guidance regarding other special rules with respect to the section 25E credit.

(b) No double benefit —

(1) In general. Under sections 25E(e) and 30D(f)(2), the amount of any deduction or other credit allowable under chapter 1 of the Code (chapter 1) for a vehicle for which a section 25E credit is allowable must be reduced by the amount of the section 25E credit allowed for such vehicle.

(2) Interaction between section 25E and section 30D credits. A section 30D credit that has been allowed with respect to a vehicle in a taxable year before the year in which a section 25E credit is allowable for that vehicle does not reduce the amount allowable under section 25E.

(c) Recapture —

(1) In general. This paragraph (c) provides rules regarding the recapture of the section 25E credit.

(i) Cancelled sale. If the sale of a previously-owned clean vehicle between the taxpayer and dealer is cancelled before the taxpayer places the vehicle in service, then—

(A) The taxpayer may not claim the section 25E credit with respect to the vehicle;

(B) The sale will be treated as not having occurred (and no transfer of the vehicle is considered to have occurred by reason of the cancelled sale), and the vehicle will, therefore, still be eligible for the section 25E credit upon a subsequent sale meeting the requirements of section 25E and the section 25E regulations;

(C) The seller report must be rescinded by the seller in the manner set forth in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter); and

(D) The taxpayer cannot make a credit transfer election under section 25E(f) and § 1.25E-3 with respect to the cancelled sale.

(ii) Vehicle return. If a taxpayer returns a previously-owned clean vehicle to the dealer within 30 days of placing such vehicle in service, then—

(A) The taxpayer cannot claim the section 25E credit with respect to the vehicle;

(B) The sale will be treated as having occurred (and a transfer of the vehicle is therefore considered to have occurred by reason of the sale), and the vehicle will not qualify for the section 25E credit upon a subsequent sale;

(C) The seller report must be updated by the seller; and

(D) A credit transfer election made pursuant to section 25E(f) and § 1.25E-3, if applicable, will be treated as nullified and any advance payment made pursuant to section 25E(f) and § 1.25E-3, if applicable, will be collected from the eligible entity as an excessive payment pursuant to § 1.25E-3(g)(2).

(iii) Resale. If a taxpayer resells a previously-owned clean vehicle within 30 days of placing the vehicle in service, then the taxpayer is treated as having purchased such vehicle with the intent to resell, and—

(A) The taxpayer cannot claim the section 25E credit with respect to the vehicle;

(B) The sale to the taxpayer will be treated as having occurred (and a transfer of the vehicle is therefore considered to have occurred by reason of the sale), and the vehicle will not qualify for the section 25E credit upon a subsequent sale;

(C) The seller report will not be updated;

(D) A credit transfer election made pursuant to section 25E(f) and § 1.25E-3, if applicable, will remain in effect and any advance payment made pursuant to section 25E(f) and § 1.25E-3 will not be collected from the eligible entity; and

(E) The amount of any transferred credit will be collected from the taxpayer as an increase in tax imposed by chapter 1 of the Code for the taxable year in which the vehicle was placed in service.

(iv) Other returns and resales. In the case of a vehicle return not described in paragraph (c)(1)(ii) of this section or a resale not described in paragraph (c)(1)(iii) of this section, the previously-owned clean vehicle will not be eligible for the section 25E credit upon a subsequent sale.

(2) Recapture rules in the case of a credit transfer election. For additional recapture rules that apply in the case of a credit transfer election, see § 1.25E-3(g)(1). For excessive payment rules that apply in the case of an advance payment made to an eligible entity, see § 1.25E-3(g)(2).

(3) Example: Vehicle return. On May 1, 2024, a dealer, D, sells a vehicle that satisfies the requirements of section 25E(c)(1) to a qualified buyer, X. X returns the vehicle to D within 30 days of placing the vehicle in service, and does not claim the section 25E credit. On July 9, 2024, D sells the vehicle to a qualified buyer, Y, for a sale price of $24,000. The vehicle history report obtained on July 9, 2024, reflects the May 1, 2024, sale and subsequent return of the vehicle. The July 9, 2024, sale of the vehicle is not a qualified sale because it is not the first transfer of the vehicle after the enactment of section 25E. Therefore, no section 25E credit is allowed in relation to that sale. It is irrelevant that X did not claim the section 25E credit with respect to the May 1, 2024, sale.

(d) Branded title. A title to a previously-owned clean vehicle indicating that such vehicle has been damaged, or is otherwise a branded title, does not impact the vehicle's eligibility for a section 25E credit.

(e) Seller registration. A seller must register with the IRS in the manner set forth in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter) for purposes of filing seller reports (as defined in § 1.25E-1(b)(18)).

(f) Requirement to file income tax return. No section 25E credit is allowed unless the taxpayer claiming such credit files a Federal income tax return for the taxable year in which the previously-owned clean vehicle is placed in service. The taxpayer must attach to such return a completed Form 8936, Clean Vehicle Credits, or successor form, that includes all information required by the form and instructions. The taxpayer must also attach a completed Schedule A (Form 8936), Clean Vehicle Credit Amount, or successor form or schedule, that includes all information required by the schedule and instructions, such as the vehicle identification number of the previously-owned clean vehicle.

(g) Taxpayer reliance on manufacturer certifications and periodic written reports to IRS. A taxpayer who acquires a previously-owned clean vehicle in a qualified sale and places it in service may rely on the manufacturer's certification concerning the manufacturer's status as a qualified manufacturer. A taxpayer also may rely on the information and certifications contained in the qualified manufacturer's periodic written reports to the IRS for purposes of determining whether a vehicle is a previously-owned clean vehicle. The procedures for such written reports are established in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter). To the extent a taxpayer relies on such certifications or information, the previously-owned clean vehicle the taxpayer acquires will be deemed to meet the requirements of section 25E(c)(1)(D) (except the section 30D(d)(1)(H) requirement cross-referenced in section 25E(c)(1)(D)(i), which must be satisfied separately), provided the certifications or information relied upon by the taxpayer support this result. See § 1.25E-3(g)(3)(ii) for an example that illustrates the interplay between the rule in this paragraph (g) and the excessive payment rule in § 1.25E-3(g)(2).

(h) 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.

(i) 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]