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Treasury Interim Guidance—What it Is and What it Means for EV Adoption

ZETA Staff
January 6, 2023

Washington, DC—Substantial investments included in the Inflation Reduction Act (IRA) will transform the U.S. energy sector and promise to secure a 40% reduction in emissions by 2030. This historic legislation represents the largest investment in clean energy and climate action in U.S. history. 

The IRA’s Clean Vehicle Credits are designed to incentivize EV purchases by modernizing Section 30D and creating Sections 45W and 25E of the United States internal revenue code.  

On December 29, 2022, the Department of Treasury and IRS released interim FAQs related to new, previously-owned, and qualified commercial clean vehicle credits. Additionally, Treasury published an update to the battery and critical components requirements pursuant to the 30D clean vehicle credit provisions. Treasury and IRS solicited public input in the course of developing these materials which ZETA provided in the form of written comments

Below, you will find a summary and analysis of the 30D, 25E, and 45W FAQs and the white paper offered by Treasury regarding the forthcoming critical mineral and battery component value calculations.

30D New Clean Vehicle Credit

To qualify for the 30D tax credit, the vehicle must be:

  • A new vehicle placed in service on or after January 1, 2023.
  • Acquired by the taxpayer for original use. 
  • In addition, the vehicle:
  1. Cannot be acquired for resale purposes;
  2. Must be made by a qualified manufacturer; 
  3. Must meet the definition of a motor vehicle under Title II of the Clean Air Act; 
  4. Must have at least four wheels;
  5. Must have a gross vehicle weight rating of less than 14,000 pounds;
  6. Must be powered to a significant extent by an electric motor with a battery capacity of 7+ kilowatt hours or more and must be capable of being recharged from an external source of electricity; 
  7. Must have final assembly in North America (N.A.). 

Effective 12/29/2022:

IRS provided a link of qualified manufacturers who have indicated that they meet IRS requirements beginning on January 1, 2023. Sellers of eligible vehicles must provide a report to the buyer at the time of sale and to the IRS to retain the credit. For vehicle sales occurring in the calendar year 2023 or later, sellers must file reports within 15 days after the end of the calendar year; more information on this can be reviewed here. The report must include:

  • Seller/Dealer name and taxpayer ID number
  • Buyer's name and taxpayer ID number
  • Maximum credit allowable under IRC 30D (new vehicles) or IRC 25E (pre-owned)
  • Vehicle identification number (VIN), unless the vehicle is not assigned one
  • Battery capacity
  • Date of sale
  • Sale price
  • For new vehicles, verification that the buyer is the original user.

This reporting requirement also applies to direct vehicle sales. 

Vehicle make/models that appear in the list above do not automatically qualify. They must also:

  • Have undergone final assembly in North America 
  • Not exceed a manufacturer suggested retail price (MSRP) of:
  1. $80,000 for vans, sport utility vehicles, and pickup trucks or
  2. $55,000 for other vehicles (sedans).

For this purpose, the MSRP is calculated by adding the base retail price suggested by the manufacturer and the manufacturer’s suggested retail price for each accessory or optional equipment physically attached to the vehicle at the time of delivery to the dealer. The MSRP calculation does not include destination charges, optional items added by the dealer, taxes, or fees.

Beginning in 2024, buyers will be able to transfer the clean vehicle credit to the dealer at the time of sale and apply that as a down payment. Dealers will need to register with the IRS in order to participate.

Section 25E Previously-Owned Clean Vehicles Credit

Qualifying used clean vehicles will benefit from a tax credit of up to $4,000 or 30% of vehicle cost, whichever is lower. The credit cannot be carried forward and the excess is not refundable.

To qualify for the credit:

  • The vehicle cannot cost more than $25,000;
  • The vehicle must be at least two years old at the time of purchase;
  • The transaction must be the vehicle's first qualified sale to a qualified buyer since August 16, 2022, other than to the original owner; and
  • The purchasing taxpayer cannot be the original user of the vehicle. 

Pre-owned used clean vehicles are not subject to the same sourcing requirements as new EVs, but the dealer selling the previously-owned clean vehicle must provide a report containing purchaser and vehicle information to the purchasing taxpayer and to the IRS. 

The report must include the following information:

  • Name and taxpayer identification number of the dealer;
  • Name and taxpayer identification number of the taxpayer; 
  • Vehicle VIN number;
  • Battery capacity of the vehicle;
  • The date of the sale and the sales price of the vehicle;
  • Maximum credit allowable for the vehicle being sold;
  • For sales after December 31, 2023, the amount of any transfer credit applied to purchase;
  • A declaration under penalties of perjury from the dealer. 

Treasury released a list of eligible manufacturers and vehicle models. Eligibility for the credit is also subject to the following restrictions:

  • The vehicle cannot be acquired for resale;
  • The vehicle must be purchased from a dealer;
  • The taxpayer taking advantage of the credit cannot be claimed as a dependent;
  • The taxpayer has not been allowed another previously-owned clean vehicle credit in the three-year period prior to the date the previously-owned clean vehicle is purchased; 
  • The qualified buyer’s income falls below certain adjusted gross income (AGI) thresholds: 
  1. $75,000 for single filers
  2. $112,500 for heads of household
  3. $150,000 for joint filers.
  • The taxpayer must be an individual, not a business.

Section 45W Commercial Clean Vehicle Credit

A taxpayer can use the credit to purchase a “qualifying commercial clean vehicle” for a “business use” (generally, “any use in a trade or business of the taxpayer”). Starting in 2023, clean commercial vehicles will be eligible for a tax credit equal to 30% of the vehicle cost or the incremental cost difference between the cost of the clean vehicle and its gas-powered equivalent. 

The provision is subject to a series of limits: 

  • $7,500 cap for vehicles lighter than 14,000 lbs (Class 1-3)
  • $40,000 cap for vehicles heavier than 14,000 lbs (Class 4-8)
  • Reduced credit of 15% for vehicles powered by an internal combustion engine.

A “qualifying commercial clean vehicle” is:

  • Made by a qualified manufacturer
  • Acquired for use or lease by the taxpayer, not for resale
  • Is treated as a motor vehicle for purposes of title II of the Clean Air Act and is manufactured primarily for use on public streets, roads, and highways (not including a vehicle operated exclusively on a rail or rails), or is mobile machinery, as defined in § 4053(8) of the Code
  • Is propelled to a significant extent by an electric motor which draws electricity from a battery that has a capacity of not less than 15 kilowatt hours. 

Taxpayers (businesses) who lease clean vehicles to customers are eligible if the taxpayers themselves are the owners of the vehicles for federal income tax purposes. A lease is more likely to be recharacterized as a sale of the vehicle for tax purposes if:

  • The lease term covers over 80%-90% of the vehicle’s economic useful life;
  • The lease agreement contains terms/provisions that economically compel the lessee to acquire the vehicle at the end of the lease term (e.g. a bargain purchase option at the end of the lease term);
  • The lease agreement includes terms that result in the lessor transferring ownership risk to the lessee.

Forthcoming Guidance on Critical Mineral and Battery Component Value Calculations for the New Clean Vehicle Credit

If a taxpayer bought a new, qualified plug-in EV in 2022 or before, you may be eligible for a clean vehicle tax credit up to $7,500 under Internal Revenue Code Section 30D.

The credit equals:

  • $2,917 for a vehicle with a battery capacity of at least 5 kilowatt hours (kWh)
  • Plus $417 for each kWh of capacity over 5 kWh

The maximum credit is $7,500. It is nonrefundable, meaning a taxpayer can't get back more on the credit than you owe in taxes. Additionally, a taxpayer is not able to apply any excess credit to future tax years.

Once Treasury finalizes its guidance, credits will be calculated based on compliance with the critical mineral ($3,750) and battery component sourcing requirements ($3,750) outlined in the IRA—if these requirements are met, taxpayers can receive up to $7,500.

Until the proposed guidance is issued, the amount of the new clean vehicle credit will continue to be determined based on the vehicle’s battery capacity, subject to other eligibility criteria, some of which are new or revised by the IRA. Treasury and the IRS intend to issue proposed guidance on the critical mineral and battery component requirements in March 2023.

Critical Mineral Components 

Given the definitions provided by Treasury and the legislative intent of the IRA, critical minerals and battery components could be divided into specific phases for evaluating the value of the critical mineral or battery component. Treasury and the IRS will likely propose a transition rule (a three-step process for determining compliance with the critical mineral requirement) for calendar years 2023 and 2024. Figure 1 shows how extraction or recyclable materials may become constituent materials.

Figure 1 Source

Step 1: A manufacturer would need to determine the procurement chain(s) for each critical mineral with the understanding that a sourced critical mineral may go through multiple procurement chains through the extraction, processing, or recycling operations. 

Step 2: Each critical mineral procurement chain in the battery would need to be evaluated as either being (1) extracted or processed in the United States, or in any country with a trade agreement in effect, or (2) recycled in North America. 

If a critical mineral involves extraction or processing, then a manufacturer must follow the guidelines in the second step in order to remain eligible and meet the following criteria:

  1. 50% or more of the value added of the critical mineral extraction steps occurred in the United States or in any country with which the United States has a free trade agreement in effect; or  
  2. 50% or more of the value added of the critical mineral processing steps occurred in the United States or in any country with which the United States has a free trade agreement in effect. 

How does Step 2 apply to critical minerals with multiple procurement chains in several countries?

The second step would need to be applied separately for each procurement chain of the critical mineral. The guidance is designed to trace the mineral’s pathway from country to country; because the process of transferring the mineral from Country A → Country B may differ from the process of transferring it from Country A → Country C, each transfer is analyzed individually. 


Lithium is initially processed at a plant in Country A. It is then transferred to a plant in Country B for final processing. After all the processing is complete, the lithium is incorporated into a constituent material. In this instance, lithium is considered to belong to one procurement chain subject to analysis. 


Lithium is initially processed at a plant in Country A. A portion of the lithium is then transferred to a plant in Country B for final processing. Another portion of the lithium is transferred to a plant in Country C for final processing. After all processing is complete, the lithium is incorporated into a constituent material.

In this instance, lithium is considered to have two procurement chains:

  • Country A to Country B
  • Country A to Country C

Each chain is analyzed separately.

“If a critical mineral procurement chain involves recycling, then a critical mineral procured from the chain would be treated as qualifying under the second step, and thus as recycled in North America, if 50% or more of the value added to the critical mineral by recycling is derived from recycling that occurred in North America.” (Page 5).

Step 3: Determine the percentage of the value of qualifying critical minerals in a battery. To determine this percentage, the sum of each qualifying critical mineral contained in the battery (determined separately for each procurement chain) will be divided by the sum of all critical minerals contained in the battery. 

IRS has advised that a manufacturer could select any date that is after the final processing or recycling step for the critical mineral, but must uniformly apply it to all critical minerals within the battery. Additionally, the manufacturer can average this percentage calculation concurrently with vehicles from the same model line, plant, class or a combination thereof, with the alignment of the N.A. final assembly requirement.

Battery Component Requirements

Once the date of the final guidance is applied, the battery component will be met if the percentage of the value of the components in the vehicle’s battery were manufactured or assembled in North America is equal to greater than 50 percent for any vehicle placed in service after that date. The legislation then increases the required percentage to:

  • 60% in 2024 and 2025
  • 70% in 2026 
  • 70% in 2027
  • 80% in 2028 
  • 100% in 2029 and beyond 

Figure 2 shows how, although constituent materials may make up battery components, they remain out of scope for percentage eligibility.  

Figure 2 Source

Treasury has determined a four-step process to determine the percentage of the value of battery components. 

Step 1: Determine whether the battery component was manufactured or assembled in North America. A battery will be considered manufactured in N.A. if substantially all of the manufacturing or assembly activities for that battery component occur in North America.

Step 2: ​​Determine the incremental value for each battery component. The resulting incremental value for the battery component will be attributable to North America or not based on the determination made in Step 1. For any battery component that makes up a cell (cathode, anode, solid metal electrode, separator, electrolyte), the value of such battery would include the value of the constituent materials contained in the battery because the incrementmental value would subtract out only the value of other manufactured or assembled battery components. 

Step 3: Determine the total value of the battery components by totaling the incremental values of each battery component determined in Step 2. This total value may also be calculated by totaling the value of each battery module.

Step 4: Calculate the percentage of the value of the battery components that were manufactured or assembled in N.A. by dividing (1) the sum total of the incremental value determined in Step 2 for all battery components that were assembled in N.A. by (2) the total value of the battery components determined in Step 3. Below, Figure 3 provides a full overview of each step and how the final value of the battery component should be calculated by manufacturers. 

Figure 3 Source

To determine the value of battery components, manufacturers can select any date that is on or after the final assembly step, but it does need to be applied uniformly for all components in the battery. A manufacturer could average these percentage calculations over a period of time (e.g., year, quarter, or month) with respect to vehicles from the same model line, plant, class, or a combination of thereof aligned with the N.A. requirement. If the resulting percentage is equal to or greater than 50 percent for vehicles placed in service in 2023 after the date on which Treasury and the IRS issue proposed guidance, then the vehicle would satisfy the battery component requirement.


As the electric vehicle market continues to grow, the interim guidance provided by the Department of Treasury and IRS provides further insight into the clean vehicle rule-making process and shows the Biden Administration's commitment to investing in the advanced manufacturing sector resulting in domestic job growth.

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