What you’re describing is an electric vehicle tax credit “recapture”, and it is described in section 130-1 of the tax code, found here:And... research/document the minimum amount of time you need to keep the car for to prevent IRS from invalidating your credit. Minimums do exist for purchases, somewhat gray for leases.
It’s often misunderstood to mean that if you sell within 3-years, you have to give back a portion, or all, of your tax credit. However, in the overwhelming majority of secondary EV sales, a recapture event does NOT occur. The three most common situations where a recapture occurs would be:
1. You sell the EV to another party, AND you know PRIOR TO THE SALE that the other party is planning to convert the vehicle to a non-EV. (Extremely rare).
2. You sell the EV to a tax-exempt entity (Also extremely rare).
3. You convert the vehicle to a non-EV (Also extremely rare).
You can trade it in to a dealer, sell it to a third party, total it in an accident, or lose it via alien abduction , and you still get to keep your full credit; even if said trade/sale/accident/abduction occurs in the same tax year as your purchase.
The key to understanding this obscure rule is to focus on the word “and” in (2) (i) (C) below as excerpted from the above link:
(2) Recapture event -
(i) In general. A recapture event occurs if, within 3 full years from the date a qualified electric vehicle is placed in service, the vehicle ceases to be a qualified electric vehicle. A vehicle ceases to be a qualified electric vehicle if -
(A) The vehicle is modified so that it is no longer primarily powered by electricity;
(B) The vehicle is used in a manner described in section 50(b); or
(C) The taxpayer receiving the credit under section 30 sells or disposes of the vehicle and knows or has reason to know that the vehicle will be used in a manner described in paragraph (b)(2)(i)(A) or (B) of this section.
(ii) Exception for disposition. Except as provided in paragraph (b)(2)(i)(C)of this section, a sale or other disposition (including a disposition by reason ofan accident or other casualty) of a qualified electric vehicle is not a recapture event.
Of course, all the usual disclaimers apply...this is not specific tax advice for your own situation...do your own research...consult your own tax advisor...
Just didn’t want anyone to get frightened into thinking if they bought an EV, claimed a credit, and then lost their job the next week and had to sell it, that they would lose the tax credit!