§25E — Previously-owned clean vehicles
Statute Text — 26 U.S.C. §25E
In the case of a qualified buyer who during a taxable year places in service a previously-owned clean vehicle, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the lesser of—
$4,000, or
the amount equal to 30 percent of the sale price with respect to such vehicle.
No credit shall be allowed under subsection (a) for any taxable year if—
the lesser of—
the modified adjusted gross income of the taxpayer for such taxable year, or
the modified adjusted gross income of the taxpayer for the preceding taxable year, exceeds
the threshold amount.
For purposes of paragraph (1)(B), the threshold amount shall be—
in the case of a joint return or a surviving spouse (as defined in section 2(a)), $150,000,
in the case of a head of household (as defined in section 2(b)), $112,500, and
in the case of a taxpayer not described in subparagraph (A) or (B), $75,000.
For purposes of this subsection, the term “modified adjusted gross income” means adjusted gross income increased by any amount excluded from gross income under section 911, 931, or 933.
For purposes of this section—
The term “previously-owned clean vehicle” means, with respect to a taxpayer, a motor vehicle—
the model year of which is at least 2 years earlier than the calendar year in which the taxpayer acquires such vehicle,
the original use of which commences with a person other than the taxpayer,
which is acquired by the taxpayer in a qualified sale, and
which—
meets the requirements of subparagraphs (C), (D), (E), (F), and (H) (except for clause (iv) thereof) of section 30D(d)(1), or
is a motor vehicle which—
satisfies the requirements under subparagraphs (A) and (B) of section 30B(b)(3), and
has a gross vehicle weight rating of less than 14,000 pounds.
The term “qualified sale” means a sale of a motor vehicle—
by a dealer (as defined in section 30D(g)(8)),
for a sale price which does not exceed $25,000, and
which is the first transfer since the date of the enactment of this section to a qualified buyer other than the person with whom the original use of such vehicle commenced.
The term “qualified buyer” means, with respect to a sale of a motor vehicle, a taxpayer—
who is an individual,
who purchases such vehicle for use and not for resale,
with respect to whom no deduction is allowable with respect to another taxpayer under section 151, and
who has not been allowed a credit under this section for any sale during the 3-year period ending on the date of the sale of such vehicle.
The terms “motor vehicle” and “capacity” have the meaning given such terms in paragraphs (2) and (4) of section 30D(d), respectively.
No credit shall be allowed under subsection (a) with respect to any vehicle unless the taxpayer includes the vehicle identification number of such vehicle on the return of tax for the taxable year.
For purposes of this section, rules similar to the rules of section 30D(f) (without regard to paragraph (10) or (11) thereof) shall apply for purposes of this section.
Rules similar to the rules of section 30D(g) shall apply.
No credit shall be allowed under this section with respect to any vehicle acquired after September 30, 2025.
Treasury Regulations
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Treas. Reg. §1.25E-0Table of contents
This section lists the captions contained in §§ 1.25E-1 through 1.25E-3.
§ 1.25E-1 Credit for previously-owned clean vehicles.
(a) In general.
(b) Definitions.
(1) Advance payment program.
(2) Credit transfer election.
(3) Dealer.
(4) Dealer tax compliance.
(5) Electing taxpayer.
(6) Eligible entity.
(7) Excessive payment.
(8) Incentive.
(i) For purposes of sale price.
(ii) For purposes of eligible entity requirements.
(9) Modified adjusted gross income.
(10) Placed in service.
(11) Previously-owned clean vehicle.
(12) Qualified buyer.
(13) Qualified manufacturer.
(14) Qualified sale.
(15) Registered dealer.
(16) Sale price.
(17) Section 25E regulations.
(18) Seller report.
(19) Time of sale.
(20) Vehicle history report.
(c) Limitation based on modified adjusted gross income.
(1) In general.
(2) Threshold amount.
(3) Special rule for change in filing status.
(d) Credit may be claimed on only one tax return.
(1) In general.
(2) Seller reporting.
(e) Examples.
(1) Example 1: First transfer since enactment of section 25E.
(2) Example 2: Multiple transfers since enactment of section 25E.
(3) Example 3: Multiple transfers; commercial purchaser.
(4) Example 4: Multiple transfers; buyer exceeds modified adjusted gross income limitation.
(5) Example 5: Multiple transfers; buyer elects to not take credit.
(6) Example 6: Multiple transfers; sale between dealers.
(f) Reliance on vehicle history report for purposes of determining whether sale is a qualified sale.
(g) Severability.
(h) Applicability date.
(a) In general.
(b) No double benefit.
(1) In general.
(2) Interaction between section 25E and 30D credits.
(c) Recapture.
(1) In general.
(i) Cancelled sale.
(ii) Vehicle return.
(iii) Resale.
(iv) Other returns and resales.
(2) Recapture rules in the case of a credit transfer election.
(3) Example: Vehicle return.
(d) Branded title.
(e) Seller registration.
(f) Requirement to file income tax return.
(g) Taxpayer reliance on manufacturer certifications and periodic written reports to IRS.
(h) Severability.
(i) Applicability date.
(a) In general.
(b) Definitions.
(1) Advance payment program.
(2) Credit transfer election.
(3) Dealer tax compliance.
(4) Electing taxpayer.
(5) Eligible entity.
(6) Registered dealer.
(7) Time of sale.
(c) Dealer registration.
(1) In general.
(2) Dealer tax compliance required.
(3) Suspension of registration.
(4) Revocation of registration.
(d) Credit transfer election by electing taxpayer.
(e) Federal income tax consequences of credit transfer election.
(1) Tax consequences for electing taxpayer.
(2) Tax consequences for eligible entity.
(3) Form of payment from eligible entity to electing taxpayer.
(4) Additional requirements.
(5) Examples.
(i) Example 1: Electing taxpayer's regular tax liability less than amount of credit.
(A) Facts.
(B) Analysis.
(ii) Example 2: Non-cash payment by eligible entity to electing taxpayer.
(A) Facts.
(B) Analysis.
(iii) Example 3: Eligible entity is a partnership.
(A) Facts.
(B) Analysis.
(f) Advance payments received by eligible entities.
(1) In general.
(2) Requirements for a registered dealer to become an eligible entity.
(g) Increase in tax.
(1) Recapture if electing taxpayer exceeds modified adjusted gross income limitation.
(2) Excessive payments.
(i) In general.
(ii) Reasonable cause.
(iii) Excessive payment defined.
(iv) Special rule for cases in which electing taxpayer's modified adjusted gross income exceeds the limitation.
(3) Examples.
(i) Example 1: Registered dealer is not an eligible entity.
(A) Facts.
(B) Analysis.
(ii) Example 2: Incorrect manufacturer certifications.
(A) Facts.
(B) Analysis.
(h) Return requirement.
(i) Two credit transfer elections per year.
(j) Severability.
(k) Applicability date.
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Treas. Reg. §1.25E-0(a)In general.
In general.
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Treas. Reg. §1.25E-0(b)Definitions.
Definitions.
(1) Advance payment program.
(2) Credit transfer election.
(3) Dealer tax compliance.
(4) Electing taxpayer.
(5) Eligible entity.
(6) Registered dealer.
(7) Time of sale.
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Treas. Reg. §1.25E-0(c)Dealer registration.
Dealer registration.
(1) In general.
(2) Dealer tax compliance required.
(3) Suspension of registration.
(4) Revocation of registration.
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Treas. Reg. §1.25E-0(d)Credit transfer election by electing taxpayer.
Credit transfer election by electing taxpayer.
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Treas. Reg. §1.25E-0(e)Federal income tax consequences of credit transfer election.
Federal income tax consequences of credit transfer election.
(1) Tax consequences for electing taxpayer.
(2) Tax consequences for eligible entity.
(3) Form of payment from eligible entity to electing taxpayer.
(4) Additional requirements.
(5) Examples.
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Treas. Reg. §1.25E-0(f)Advance payments received by eligible entities.
Advance payments received by eligible entities.
(1) In general.
(2) Requirements for a registered dealer to become an eligible entity.
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Treas. Reg. §1.25E-0(g)Increase in tax.
Increase in tax.
(1) Recapture if electing taxpayer exceeds modified adjusted gross income limitation.
(2) Excessive payments.
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Treas. Reg. §1.25E-0(h)Return requirement.
Return requirement.
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Treas. Reg. §1.25E-0(i)Two credit transfer elections per year.
Two credit transfer elections per year.
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Treas. Reg. §1.25E-0(j)Severability.
Severability.
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Treas. Reg. §1.25E-0(k)Applicability date.
Applicability date.
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Treas. Reg. §1.25E-1Credit 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.
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Treas. Reg. §1.25E-1(a)In general.
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).
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Treas. Reg. §1.25E-1(b)Definitions.
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—
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Treas. Reg. §1.25E-1(c)Limitation based on modified adjusted gross income—(1) In general.
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—
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Treas. Reg. §1.25E-1(d)Credit may be claimed on only one tax return—(1) In general.
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.
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Treas. Reg. §1.25E-1(e)Examples.
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.
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Treas. Reg. §1.25E-1(f)Reliance on vehicle history report for purposes of determining whether sale is a qualified sale.
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).
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Treas. Reg. §1.25E-1(g)Severability.
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.
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Treas. Reg. §1.25E-1(h)Applicability date.
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.
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Treas. Reg. §1.25E-1(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.
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.
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Treas. Reg. §1.25E-2Special 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.
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Treas. Reg. §1.25E-2(a)In general.
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.
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Treas. Reg. §1.25E-2(b)No double benefit—(1) In general.
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.
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