The New Clean Vehicle” Tax Credit

This Client Advisory describes requirements that must be satisfied to qualify for the new clean vehicle” tax credit, following enactment of the Inflation Reduction Act of 2022 (the IRA”).


Section 30D of the Internal Revenue Code (the Code”) was enacted in 2008 to provide a tax credit with respect to new qualified plug-in electric drive motor vehicles.[1] Section 30D has been amended several times, most recently, by the IRA.

Prior to January 1, 2023, the tax credit was phased out for manufacturers after they sold 200,000 electric vehicles. The IRA eliminates the limitation on the number of new qualified plug-in electric drive motor vehicles each manufacturer can sell.[2]

The stated purpose of IRA amendments to Section 30D is to promote the purchase and use of new clean vehicles” by lower- and middle-income Americans, to promote domestic manufacturing and strengthen supply chains with trusted trading partners, and to reduce carbon emissions.

Technical Requirements

Section 30D(a) allows a tax credit for each new clean vehicle” placed in service by the taxpayer during the taxable year. To qualify as a new clean vehicle,” the following requirements must be satisfied:

  • The vehicle must be manufactured by a qualified manufacturer”;[3]
  • The vehicle must have a gross vehicle weight rating of less than 14,000 pounds;
  • The vehicle must be acquired for use or lease by the taxpayer and not for resale;
  • The original use of the vehicle must commence with the taxpayer;
  • Final assembly” of the vehicle must occur within the United States;[4]
  • The vehicle must be propelled to a significant extent by an electric motor from a battery (1) with at least seven kilowatt-hours of capacity; and (2) which is capable of being recharged from an external source of electricity;[5] and
  • The vehicle must be treated as a motor vehicle” for purposes of Title II of the Clean Air Act (that is to say, it is a vehicle manufactured for use on public streets, roads and highways, and must have at least four wheels).

Tax Credit Amount

For new clean vehicles” placed in service on or after April 18, 2023, a $3,750 credit is allowed if certain critical mineral” requirements for the battery are satisfied,[6] and an additional $3,750 credit is allowed if certain battery components” requirements are satisfied.[7] Thus, a new clean vehicle” could qualify for a maximum tax credit of $7,500, assuming it satisfies all requirements applicable with respect to critical minerals” and battery components.”

Critical Mineral” Requirement

To satisfy the critical mineral” requirement, the battery must have a percentage of value of applicable critical minerals” (as defined in Section 45X(c)(6)) that were (1) extracted or processed in the U.S. or a country that has a free trade agreement with the U.S., or (2) recycled in North America equal to or greater than an applicable percentage.”[8]

In the case of vehicles placed in service prior to January 1, 2024, the applicable percentage” is 40%. The applicable percentage” is 50% for a vehicle placed in service during calendar year 2024, 60% for 2025, 70% for 2026 and 80% after 2026.[9]

Battery Components” Requirement

To satisfy the battery components” requirement, the battery must have a percentage of the value of components that were manufactured or assembled in North America equal to or greater than an applicable percentage.”[10] The applicable limitation is 50% for a vehicle placed in service before January 1, 2024, 60% for a vehicle placed in service during calendar year 2024 or 2025, 70% for 2026, 80% for 2027, 90% for 2028, and 100% after 2028.[11]

Vehicle Price Limitations

The manufacturer’s suggested retail price (the MSRP”) of a new clean vehicle” cannot exceed certain limitations. No tax credit is available if the MSRP for the vehicle exceeds the maximum applicable limitation.”[12] The applicable limitation” is $80,000 in the case of a van, a sport utility vehicle or a pickup truck, and $55,000 in the case of any other vehicle.[13]

AGI Limitations

No tax credit is allowed if the taxpayer’s modified adjusted gross income” exceeds $300,000, in the case of a joint return or surviving spouse, $225,000, in the case of a head of household, or $150,000, in the case of any other taxpayer.[14] In calculating this limitation, the taxpayer’s income is the lesser of modified adjusted gross income” for the current taxable year or the preceding taxable year. Modified adjusted gross income” is defined to mean adjusted gross income increased by any amount excluded from gross income under Section 911, 931 or 933.[15]

Foreign Entity of Concern”

A new clean vehicle” does not include any vehicle placed in service after December 31, 2024, with respect to which any of the applicable critical minerals” contained in the battery of such vehicle (as defined in Section 45X(d)(6)) were processed, extracted, or recycled by a foreign entity of concern,” defined below.[16]

A new clean vehicle” also does not include any vehicle placed in service after December 31, 2023, with respect to which any of the components contained in the battery in such vehicle were manufactured, or assembled by a foreign entity of concern.”[17]

Section 30D(d)(7)(A) defines the term foreign entity of concern” by cross-reference to Section 40207(a)(5) of the Infrastructure Investment and Jobs Act (the IIJA”).

Pursuant to Section 18741(a)(5)(C) of the IIJA, a foreign entity of concern” includes any foreign entity” that is owned by, or subject to the jurisdiction or direction of a government of a covered nation” [currently, China, Russia, Iran and North Korea].

In December 2023, the Department of Energy and the Department of Treasury issued proposed guidance defining the term foreign entity of concern” under the IIJA. The proposed guidance would generally disallow the tax credit if vehicles contain battery components” or critical minerals” produced in China. The proposed guidance would not necessarily disallow the tax credit if the battery components” or critical minerals” are produced outside of China by subsidiaries of Chinese companies or joint ventures involving Chinese companies (provided that the entity is not ultimately owned or controlled by the Chinese government),[18] because, under the proposed guidance, a partially-controlled subsidiary of a foreign entity of concern” is not automatically classified as a foreign entity of concern.”[19]

Senator Joe Manchin and others have expressed concern that Chinese companies could circumvent limitations in the IRA by pursuing business opportunities and arrangements outside China, including joint ventures and investments, in South Korea and Morocco.

2024 Changes

Effective January 1, 2024, in the case of eligible consumers, the tax credit is available as a point-of-sale rebate from the manufacturer. By contrast, with respect to pre-2024 years, the taxpayer is required to claim the tax credit on his, her or its tax return.

Also, effective January 1, 2024, certain vehicles will no longer qualify for the tax credit because the battery includes battery components” manufactured by a foreign entity of concern,” and other vehicles will qualify for a reduced tax credit because of the failure to satisfy the increased applicable percentage” with respect to the battery component” requirement or the critical mineral” requirement.

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[1] All Sections referenced are to the Code unless otherwise stated.

[2] IRA, Section 13401(d).

[3] A qualified manufacturer” is a manufacturer defined in regulations prescribed by the Environmental Protections Agency which provides specified periodic reports to the Treasury. Section 30D(d)(3).

[4] Section 30D(d)(5) defines final assembly” as 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.”

[5] Section 30D(d)(1).

[6] Section 30D(b)(2).

[7] Section 30D(b)(3).

[8] Section 30D(e)(1)(A).

[9] Sections 30D(e)(1)(b).

[10] Sections 30D(e)(2)(a).

[11] Sections 30D(e)(2)(b).

[12] Section 30D(f)(11)(A).

[13] Section 30D(f)(11)(B).

[14] Section 30D(f)(10)(B).

[15] Section 30D(f)(10)(C).

[16] Section 30D(d)(7)(A).

[17] Section 30D(d)(7)(B).

[18] Note, however, that, to qualify for the tax credit, the vehicle must satisfy the content requirements for battery components produced in North America and critical minerals extracted or procured in the United States or countries with which the United States has a free trade agreement.

[19] As described in IRS Revenue Procedure 2023-38, for calendar years beginning on or after January 1, 2025, the qualified manufacturer” must provide information to the IRS to establish a compliant battery ledger” for each calendar year. The compliant battery ledger” tracks the manufacturers anticipated supply of batteries that are compliant with the foreign entity of concern” requirement.