Can You Sell an EV After Getting the Tax Credit?
Understand the rules for selling an EV after claiming the tax credit, including ownership requirements, potential repayment, and proper documentation.
Electric vehicle (EV) tax credits can significantly reduce the cost of a new EV, but many buyers wonder if they can sell the car shortly after claiming the credit. Whether due to financial reasons or a change in preference, it’s important to understand the potential consequences before making a decision.
Selling too soon could have financial and legal implications, including possible repayment obligations or reporting requirements. Understanding these factors helps avoid unexpected costs and ensures compliance with tax laws.
Minimum Ownership Duration
The federal EV tax credit, established under the Inflation Reduction Act of 2022, does not require a minimum ownership period. However, the credit is intended for buyers who use the vehicle rather than those who immediately resell it. If the IRS suspects a purchase was made solely to claim the credit and quickly sell the vehicle, it could investigate and deny the credit.
State-level incentives often have stricter rules. California’s Clean Vehicle Rebate Project (CVRP) requires recipients to keep the vehicle for at least 30 months, and selling before then could require repayment. New York and Colorado have similar provisions, making it essential to check local regulations before selling.
Leased EVs follow different rules. In these cases, the tax credit is claimed by the leasing company, not the lessee. Returning a leased EV early won’t require repaying the credit, but early termination fees may apply.
Potential Repayment Requirements
Selling an EV soon after claiming the federal tax credit generally does not require repayment. The credit applies to the tax liability in the year of purchase, and once used, the IRS does not seek reimbursement. However, if the credit was improperly claimed due to income limits, vehicle eligibility, or dealer errors, repayment may be required when filing an amended return or during an audit.
Errors often stem from misreporting vehicle eligibility. The IRS maintains a list of qualifying models, and if a car does not meet battery capacity or final assembly requirements, the credit may be denied. Income limits also apply, so high earners may not qualify. If a taxpayer mistakenly receives the credit despite exceeding the income cap, the IRS can demand repayment with interest and penalties.
If the credit was applied at the point of sale, the dealership verifies eligibility. However, if incorrect information was provided, the IRS may hold the buyer responsible for returning the credit. Since the credit is non-refundable, taxpayers who received more than they were entitled to could owe additional taxes when filing their return.
Reporting to Tax Authorities
When selling an EV after receiving a tax credit, tax reporting depends on whether a gain or loss is realized. If the vehicle sells for less than its adjusted basis—the purchase price minus depreciation—there is usually no taxable gain. However, if the sale price exceeds the adjusted basis, the difference may be considered taxable income, though this is uncommon for personal-use vehicles.
For business owners, tax implications are more complex. If the vehicle was deducted under Section 179 or bonus depreciation rules, selling it can trigger depreciation recapture. This means a portion of the previously deducted amount must be reported as income, which the IRS treats as ordinary income rather than capital gains. Keeping detailed depreciation records is essential.
State tax laws also play a role. Some states impose sales tax on private vehicle sales, requiring sellers to report the transaction and possibly collect tax from the buyer. Others, like Oregon and New Hampshire, do not levy sales tax on vehicle sales, simplifying the process. Checking state-specific rules ensures compliance and prevents unexpected tax liabilities.
Documenting the Transaction for the Sale
Proper documentation is essential when selling an EV, especially if tax incentives were involved. A bill of sale should include the transaction date, vehicle identification number (VIN), sale price, and the names and signatures of both parties. An odometer disclosure statement is also required in most states under the Truth in Mileage Act (49 U.S.C. 32705) to prevent disputes over mileage.
Transferring the title correctly is another key step. Many states require the seller to complete a title reassignment section, which may also include a lien release if the vehicle was financed. Some states, such as California and Florida, require sellers to submit a Notice of Transfer and Release of Liability within a set timeframe, typically 5 to 10 days, to avoid future liability if the buyer fails to register the vehicle or incurs fines. Failing to notify the state’s Department of Motor Vehicles (DMV) could leave the seller responsible for toll violations, parking tickets, or legal issues if the vehicle is involved in an accident.