When the Inflation Reduction Act was passed in late 2022 it included various provisions that made investments in clean energy more attractive. To accomplish this, there were dozens of tax and other incentives designed to encourage taxpayers to make investments in clean energy. While most are designed to benefit companies two provisions offer savings to eligible individuals. Specifically, the New Clean Vehicle Tax Credit and the Used Clean Vehicle Tax Credit. Both these offer a federal tax credit on an eligible purchase.
Through the end of 2023, individuals can only claim the credit when submitting the federal income tax return. However, starting in 2024, it will be possible to claim the credit at the time of sale thus reducing the overall price. Chicago auto dealers who want to participate are required to register for the IRS Energy Credits Online (ECO) tool. This ECO tool is a portal that allows the dealership to submit the necessary reports in real-time and receive an almost immediate credit payment from the IRS. To help clients, prospects, and others, Selden Fox has provided a summary of the key details below.
Clean Vehicle Credits Transfer Details
Starting in 2023, taxpayers who purchased new electric vehicles were eligible for a federal tax credit of up to $7,500 for new and up to $4,000 for previously owned vehicles. The Inflation Reduction Act introduced a new possibility for taxpayers to transfer their vehicle credit to an eligible dealer or seller at purchase. Vehicle owners can apply the credits as a down payment, and dealers can use the advance payment program to receive credit reimbursement from the IRS.
Section 4.02(3) in Revenue Procedure 2023-33 provides the necessary steps dealers need to take to receive advance credits. They should provide the future vehicle owner information, MRSP of the new vehicle (or sale price of the used vehicle), the maximum allowable credit available, what’s being offered to the owner as part of the transfer, modified adjusted gross income (AGI) limitations, and certification that the dealer will pay the owner in one of the allowed ways during or before the time of the sale.
Registration will also include providing the VIN, taxpayer disclosure information, and seller report at the time of sale through the portal. These reports need to be provided through the portal within three days of the purchase date.
Why Did the IRS Launch the ECO Portal?
Funding for the IRS through the Inflation Reduction Act was earmarked in part to digital tools geared toward making online registration and other tasks easier. The IRS ECO tool is meant to be a straightforward online portal that dealers and sellers can use when claiming these credits. Taxpayers are likely to see more user-friendly tools and technologies in the months and years to come.
What is the IRS ECO Tool?
The IRS ECO tool launched at the beginning of November and is now open for dealer and seller registration. Businesses will be able to receive advance payments through the tool after claiming the credits for clean vehicles placed in service on or after January 1, 2024. With the portal, advance payments will come within 72 hours, and dealers and sellers will receive a time of sale report that can be filed with their federal tax returns.
When Should Dealers and Sellers Register on IRS ECO?
While credits won’t be available until 2024, businesses should register as soon as possible because there will be a delay between the time of registration and receipt of the first advance payment. Right now, only one employee for each business can register, which should be done immediately. Starting in December 2023, more than one employee will be able to register. These authorized employees can submit advance payment requests and time of sale reports.
FAQs on the Energy Credits Online Tool
To answer some of the most pressing questions, the IRS created an FAQ document, which includes insight on the following:
- Registration will be the same for previously owned and new vehicle sales.
- Dealers need to be licensed by a state, Indian tribal government, the District of Columbia, or Alaska Native Corporation to submit time of sale reports and receive advance payments.
- While some details can be edited at any time, including phone number and address, other information cannot, such as bank account number and dealer state license number. The latter would require re-registration.
- Registration should be done for each EIN a dealership has; however, one person can be the same authorized registrant for all EINs.
- One of the reasons additional users are being rolled out in December is because additional permission management features will be available that will allow users to only submit time-of-sale reports.
- Time of sale reports for 2023 should not be submitted. Only those that occur on or after January 1, 2024, are eligible for this process.
Contact Us
Chicago dealerships interested in offering this immediate discount to eligible customers should register on the ECO portal soon. There are only a few weeks left before the start of the new year and time can pass quickly. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Selden Fox can help. For additional information call 630.954.1400 or click here to contact us. We look forward to speaking with you soon.
