Chapter 15: Federal Tax Law Updates (2023/2024)- Addendum

Overview
The information contained within this addendum to the 2022/2023 Tax Law Updates that provides
a summary of tax law updates for tax year 2023 and 2024. Some tax year 2024 updates were not
available at the time this update was released. Once the IRS releases information about the missing
updates, we will make them available in a second addendum.

Important Dates for Tax Year 2023

Tax Return Due Dates

April 15, 2024 is the official due date for tax year for 2023 tax returns; however, taxpayers living in
Maine and Massachusetts have until April 17, 2024 to file their 2023 individual tax return due to the
Patriots’ Day holiday on April 15, 2024 and the Emancipation Day holiday on April 16, 2024.

The filing deadline for Form 4868, Application for Automatic Extension of Time To File U.S.
Individual Income Tax Return, is October 15th unless that date fall on a Saturday, Sunday, or
holiday.

Due Date for Business Returns

March 15th - Form 1065, U.S. Return of Partnership Income, and Form 1120-S, U.S. Income Tax
Return for an S Corporation.

April 15th - Form 1041, U.S. Income Tax Return for Estates and Trusts, returns are generally due
April 15th.

Taxpayer’s may file a request for an automatic extension, which will extend the time to file for 6
months from the original due date of the tax return. If an extension is needed for Form 1065 or
Form 1041, the taxpayer should file Form 7004, Application for Automatic Extension of Time To
File Certain Business Income Tax, Information, and Other Returns.

Tax Season Begins for 2023 Returns

The IRS officially kicks off tax season on January 23, 2024. This is the first day the IRS will begin
accepting electronically filed tax returns.

Tax Rates and Schedules

New Tax Rates

The following tables apply the 2023 and 2024 tax rates to each of the five filing statuses: MFJ,
QSS, HOH, Single, and MFS.

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Tax Year 2023 Tax Brackets
Single
If taxable income is: The tax is:
Not over $11,000 10% of taxable income.
Over $11,000 but not over $44,725 $1,100 plus 12% of the excess over $11,000.
Over $44,725 but not over $95,375 $5,147 plus 22% of the excess over $44,725.
Over $95,375 but not over $182,100 $16,290 plus 24% of the excess over $95,375.
Over $182,100 but not over $231,250 $37,104 plus 32% of the excess over $182,100.
Over $231,250 but not over $578,125 $52,832 plus 35% of the excess over $231,250.
Over $578,125 $174,238.25 plus 37% of the excess over $578,125.

HOH
If taxable income is: The tax is:
Not over $15,700 10% of taxable income.
Over $15,700 but not over $59,850 $1,570 plus 12% of the excess over $15,700.
Over $59,850 but not over $95,350 $6,868 plus 22% of the excess over $59,850.
Over $95,350 but not over $182,100 $14,678 plus 24% of the excess over $95,350.
Over $182,100 but not over $231,250 $35,498 plus 32% of the excess over $182,100.
Over $231,250 but not over $578,100 $51,226 plus 35% of the excess over $231,250.
Over $578,100 $172,623.50 plus 37% of the excess over $578,100.

MFJ and QSS

If taxable income is: The tax is:
Not over $22,000 10% of taxable income.
Over $22,000 but not over $89,450 $2,200 plus 12% of the excess over $22,000.
Over $89,450 but not over $190,750 $10,294 plus 22% of the excess over $89,450.
Over $190,750 but not over $364,200 $32,580 plus 24% of the excess over $190,750.
Over $364,200 but not over $462,500 $74,208 plus 32% of the excess over $364,200.
Over $462,500 but not over $693,750 $105,664 plus 35% of the excess over $462,500.
Over $693,750 $186,601.50 plus 37% of the excess over $693,750.

MFS
If taxable income is: The tax is:
Not over $11,000 10% of taxable income.
Over $11,000 but not over $44,725 $1,100 plus 12% of the excess over $11,000.
Over $44,725 but not over $95,375 $5,147 plus 22% of the excess over $44,725.
Over $95,375 but not over $182,100 $16,290 plus 24% of the excess over $95,375.
Over $182,100 but not over $231,250 $37,104 plus 32% of the excess over $182,100.
Over $231,250 but not over $346,875 $52,832 plus 35% of the excess over $231,250.
Over $346,875 $93,300.75 plus 37% of the excess over $346,875.

Estates and Trusts

If taxable income is: The tax is:
Not over $2,900 10% of taxable income.
Over $2,900 but not over $10,550 $290 plus 24% of the excess over $2,900.
Over $10,550 but not over $14,450 $2,126 plus 35% of the excess over $10,550.
Over $14,450 $3,491 plus 37% of the excess over $14,450.

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Tax Year 2024 Tax Brackets
Single
If taxable income is: The tax is:
Not over $11,600 10% of taxable income.
Over $11,601 but not over $47,150 $1,160 plus 12% of the excess over $11,600.
Over $47,151 but not over $100,525 $5,426 plus 22% of the excess over $47,150.
Over $100,526 but not over $191,950 $17,168.50 plus 24% of the excess over $100,525.
Over $191,951 but not over $243,725 $39,110.50 plus 32% of the excess over $191,950.
Over $243,726 but not over $609,350 $55,678.50 plus 35% of the excess over $243,725.
Over $609,350 $183,647.25 plus 37% of the excess over $609,350.

HOH
If taxable income is: The tax is:
Not over $16,550 10% of taxable income.
Over $16,551 but not over $63,100 $1,655 plus 12% of the excess over $16,550.
Over $63,101 but not over $100,500 $7,241 plus 22% of the excess over $63,100.
Over $100,501 but not over $191,950 $15,469 plus 24% of the excess over $100,500.
Over $191,951 but not over $243,700 $37,417 plus 32% of the excess over $191,950.
Over $243,701 but not over $609,350 $53,977 plus 35% of the excess over $243,700.
Over $609,350 $181,954.50 plus 37% of the excess over $609,350.

MFJ and QSS

If taxable income is: The tax is:
Not over $23,200 10% of taxable income.
Over $23,201 but not over $94,300 $2,320 plus 12% of the excess over $23,200.
Over $94,301 but not over $201,050 $10,852 plus 22% of the excess over $94,300.
Over $201,051 but not over $383,900 $34,227 plus 24% of the excess over $201,050.
Over $383,901 but not over $487,200 $78,221 plus 32% of the excess over $383,900.
Over $487,451 but not over $731,200 $111,357 plus 35% of the excess over $487,450.
Over $731,200 $196,669.50 plus 37% of the excess over $731,200.

MFS
If taxable income is: The tax is:
Not over $11,600 10% of taxable income.
Over $11,601 but not over $47,150 $1,160 plus 12% of the excess over $11,600.
Over $47,151 but not over $100,525 $5,426 plus 22% of the excess over $47,150.
Over $100,526 but not over $191,950 $17,169 plus 24% of the excess over $100,525.
Over $191,951 but not over $243,725 $39,110 plus 32% of the excess over $191,950.
Over $243,726 but not over $365,600 $55,679 plus 35% of the excess over $243,725.
Over $365,600 $98,335 plus 37% of the excess over $365,600.

Estates and Trusts

If taxable income is: The tax is:
Not over $3,100 10% of taxable income.
Over $3,100 but not over $11,150 $310 plus 24% of the excess over $3,100.
Over $11,150 but not over $15,200 $2,242 plus 35% of the excess over $11,150.
Over $15,000 $3,659.50 plus 37% of the excess over $15,200.

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Kiddie Tax
Form 8615, Tax for Certain Children Who Have Unearned Income, must be filed for any child who
had more than $2,500 of unearned income in 2023 (in 2024, this amount increases to $2,600).

The child’s parent may be able to elect to report the child’s unearned income on the parent’s return
if the child’s gross income for 2023 was less than $12,500 ($13,000 in 2024).

Capital Gains Rates

The following charts list the 2023 and 2024 capital gains rates.

2023 Capital Gains Rates

Filing Status 0% 15% 20%
Single $0-$44,625 $44,626-$492,300 $492,301 or more
MFJ and QSSs $0-$89,250 $89,251-$553,850 $553,851 or more
MFS $0-$44,625 $44,626-$276,900 $276,901 or more
HOH $0-$59,750 $59,751-$523,050 $523,051 or more
Estates, Trusts & Kiddie Tax $0-$ 3,000 $ 3,001-$14,650 Over $14,650
Unrecaptured Section 1250 gain 25%
Collectibles
28%
Eligible gain on qualified small business stock less the 1202 exclusion

2024 Capital Gains Rates

Filing Status 0% 15% 20%
Single $0-$47,025 $47,026-$518,900 $518,901 or more
MFJ and QSSs $0-$94,050 $94,051-$583,750 $583,751 or more
MFS $0-$47,025 $47,026-$291,850 $291,851 or more
HOH $0-$63,000 $63,001-$551,350 $551,351 or more
Estates, Trusts & Kiddie Tax $0-$ 3,150 $ 3,151-$15,450 Over $15,450
Unrecaptured Section 1250 gain 25%
Collectibles
28%
Eligible gain on qualified small business stock less the 1202 exclusion

2023 and 2024 Filing Requirements for Most People

The filing requirements for tax year 2023 are shown below.
AND at the end of 2023, THEN file a return if their gross
Filing Status
the taxpayer was … income was at least …
Under 65 $13,850
Single
65 or older $15,700
Under 65 $27,700
MFJ 65 or older (1 spouse) $29,200
65 or older (both spouses) $30,700
MFS Any age $ 5
Under 65 $20,800
HOH
65 or older $22,650
Under 65 $27,700
QSS
65 or older $29,200
If the taxpayer was born on January 1, 1959, they are considered to be age 65 at the end of 2023.

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 The filing requirements for tax year 2024 are shown below.
AND at the end of 2024, THEN file a return if their gross
Filing Status
the taxpayer was … income was at least …
Under 65 $14,600
Single
65 or older $16,550
Under 65 $29,200
MFJ 65 or older (1 spouse) $30,750
65 or older (both spouses) $32,300
MFS Any age $ 5
Under 65 $21,900
HOH
65 or older $23,850
Under 65 $29,200
QSS
65 or older $30,750
If the taxpayer was born on January 1, 1960, they are considered to be age 65 at the end of 2024.

Failure to File
When a return is filed more than 60 days after the return due date, including extensions, the
minimum penalty is the lesser of 100% of the tax payment required on the return that the taxpayer
did not pay on time or $450 for returns filed in 2023 and $485 for returns filed in 2024. The penalty
for tax returns required to be filed in 2025 is the lessor of $510 or 100% of the tax payment.

Standard Deductions
The standard deduction 2023 and 2024 follow.

Standard Deduction
Filing Status AND 2023 2024
Under 65 $13,850 $14,600
Single 65 or older or blind $15,700 $16,550
65 or older and blind $17,550 $18,500
Under 65 (both spouses) $27,700 $29,200
65 or older or blind (one spouse) $29,200 $30,750
65 or older or blind (both spouses) $30,700 $32,300
MFJ 65 or older and blind (one spouse) $30,700 $32,300
65 or older (both spouses) and
$32,200 $33,850
one spouse blind
65 or older and blind (both spouses) $33,700 $35,400
Spouse itemizes deductions $ 0 $ 0
Under 65 $13,850 $14,600
MFS
65 or older or blind $15,350 $16,550
65 or older and blind $16,850 $18,500
Under 65 $20,800 $21,900
HOH 65 or older or blind $22,650 $23,850
65 or older and blind $24,500 $25,800
Under 65 $27,700 $29,200
QSS 65 or older or blind $29,200 $30,750
65 or older and blind $30,700 $32,300

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Dependent Standard Deduction
The dependent standard deduction for tax year 2023 is $1,250 for dependents with unearned
income only. For dependents who have both earned and unearned income, the standard deduction
in 2023 is the greater of $1,250 or the dependent’s earned income plus $400, but not more than
the standard deduction for their filing status. The dependent standard deduction for tax year 2024
is $1,300 for dependents with unearned income only. For dependents who have both earned and
unearned income, the standard deduction in 2024 is the greater of $1,300 or the dependent’s
earned income plus $450, but not more than the standard deduction for their filing status if they
were not claimed as a dependent.

Taxpayers Age 65 or Older and/or Blind

For Tax Year 2023
1. For taxpayers born before January 2, 1959
o The additional standard deduction is $1,500 for taxpayers who use one of the
following filing statuses:
 MFJ, QSS, or MFS
o The additional standard deduction is $1,850 for taxpayers who use one of the
following filing statuses:
 Single, or HOH

For Tax Year 2024

2. For taxpayers born before January 2, 1960
o The additional standard deduction is $1,550 for taxpayers who use one of the
following filing statuses:
 MFJ, QSS, or MFS
o The additional standard deduction is $1,950 for taxpayers who use one of the
following filing statuses:
 Single, or HOH

AND at the end of the applicable 2023 Standard 2024 Standard

Filing Status
year, the taxpayer was … Deduction Deduction
65 or older or blind $15,700 $16,550
Single
65 or older and blind $17,550 $18,500
65 or older or blind (1 spouse) $29,200 $30,750
65 or older and blind (1 spouse) $30,700 $32,300
65 or older or blind (both spouses) $30,700 $32,300
MFJ 65 or older (both spouses) and
$32,200 $33,850
one spouse blind
65 or older and blind (both
$33,700 $35,400
spouses)
Spouse Itemizes Deductions $ 0 $ 0
MFS 65 or older or blind $15,350 $16,550
65 or older and blind $16,850 $18,500
65 or older or blind $22,650 $23,850
HOH
65 or older and blind $24,500 $25,800
65 or older or blind $29,200 $30,750
QSS
65 or older and blind $30,700 $32,300
If the taxpayer was born on January 1, 1959, they are considered to be age 65 at the end of 2023.
If the taxpayer was born on January 1, 1960, they are considered to be age 65 at the end of 2024.

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Personal Exemption and Gross Income Limitation for Qualifying
Relative
Although the personal exemption was eliminated in 2018, there are specific codes sections that
refer to the exemption amount and require an “amount” for calculation, such as the gross income
limitation for a qualifying relative. The exemption amount for 2023 is $4,700 and 2024 is $5,050 as
adjusted for inflation.

Alternative Minimum Tax Exemption and Phaseout Threshold

The chart below provides the 2023 AMT exemptions versus the 2024 exemption amounts. The
phaseout of the exemption amount is also included in the following chart for 2023 and 2024.

Threshold Complete Threshold Complete

Filing 2023 AMT 2024 AMT Phaseout Phaseout Phaseout Phaseout
Status Exemption Exemption Amount Amount Amount Amount
2023 2023 2024 2024
MFJ $126,500 $133,300 $1,156,300 $1,662,300 $1,218,700 $1,751,900
Single/
$81,300 $85,700 $578,150 $903,350 $609,350 $952,150
HOH
MFS $63,250 $66,650 $578,150 $831,150 $609,350 $875,950
Estates
$28,400 $29,900 $94,600 $208,200 $99,700 $219,300
and Trusts

The 2023 and 2024 inflation-adjusted amounts for excess taxable income above which the 28%
tax rate applies are indicated in the chart below.

2023 Excess 2024 Excess

Filing Status
Taxable Income Taxable Income
MFJ, Single, HOH, Estates and
$220,700 $232,600
Trusts
MFS $110,350 $116,300

For 2023, the AMT exemption amount for a child to whom the Kiddie Tax applies may not exceed
the total of:
1. The child’s earned income for the taxable year, plus
2. $8,800.

For 2024, the AMT exemption amount for a child to whom the Kiddie Tax applies may not exceed
the total of:
1. The child’s earned income for the taxable year, plus
2. $9,250.

New FinCEN reporting requirements in 2024

Due to regulations under the Corporate Transparency Act of 2020 (CTA), most small corporations,
LLCs, and partnerships will be required to report beneficial ownership information to FinCEN.
Beneficial ownership information is identifying information about the individuals who directly or
indirectly own or control a company.

On September 30, 2022, FinCEN issued the Beneficial Ownership Information Reporting
Requirements final rule (“final BOI reporting rule”), and on March 24, 2023, released FAQs

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regarding the requirements. 3 Many taxpayers are unaware of these requirements that will take
effect beginning in 2024.

Currently, there is no centralized database that contains complete information about owners and
operators of legal entities within the United States. Most jurisdictions do not require the identification
of an entity's individual beneficial owners at or after the time of formation. Many states require little
to no disclosure of contact information or other information about an entity's officers or others who
control the entity. The beneficial ownership information reporting requirement was created to
“enhance U.S national security by making it more difficult for criminals to exploit opaque legal
structures to launder money, traffic humans and drugs, and commit serious tax fraud and other
crimes that harm the American taxpayer.” 4

The final regulations cite the following examples in which corporate entities were used to conceal
illicit activities:
 In June 2021, a group of individuals, using synthetic identities, worked together to
fraudulently apply for $24 million of PPP loans.
 In July 2022, an individual was sentenced for using multiple shell entities to fraudulently
submit 63 loan applications for PPP and EIDL loans.

Reporting companies are required to report beneficial ownership information to FinCEN. The two
types of reporting companies are:
 Domestic Reporting Companies, defined as:
o Corporations;
o LLCs; or
o Any other entity created by the filing of a document with a secretary of state or
any similar office under the law of a state or Indian tribe.
 Common structures include limited liability partnerships, limited liability
limited partnerships, business trusts, and most limited partnerships.
 Foreign Reporting Companies, defined as:
o Corporations, LLCs, or other entities formed under the law of a foreign country;
and
o Registered to do business in any U.S. state or in any tribal jurisdiction, by the
filing of a document with a secretary of state or any similar office under the law of
a U.S. state or Indian tribe.

Limited exemptions from the reporting requirement apply, and most exempt entities are already
subject to federal and state information reporting.

A beneficial owner is any individual who:

 Directly or indirectly exercises substantial control over the reporting company; or
 Directly or indirectly owns or controls 25% or more of the “ownership interests” of the
reporting company.

Per FAQs, a beneficial owner typically exercises substantial control over a reporting company if
they “direct, determine, or exercise substantial influence over important decisions the reporting
company makes.” 5 Any senior officer is deemed to have substantial control over a company.

3
87 FR 59498 (September 30, 2022) and FinCEN Beneficial Ownership Information Reporting Frequently Asked
Questions (March 24, 2023).
4
87 FR 59498 (September 30, 2022).
5
FinCEN Beneficial Ownership Information Reporting Frequently Asked Questions (March 24, 2023).

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 Example: ABC, Inc. is a reporting company that has the following organization chart:

ABC, Inc.

John Flora Matt Alexa

James Smith Johnson Anderson
60% of stock 30% of stock 10% of stock President

Which individual(s) are considered beneficial owners?

 John James is considered a beneficial owner because he has 25% or more of
the ownership interests of the reporting company, ABC, Inc.
 Flora Smith is considered a beneficial owner because she has 25% or more of
the ownership interests of the reporting company, ABC, Inc.
 Alexa Anderson is considered a beneficial owner because although she does
not have 25% or more of the ownership interests of the reporting company, ABC,
Inc., she is a senior officer that is deemed to have substantial control over the
company.
 Matt Johnson only owns 10% or more of the ownership interests of the reporting
company, ABC, Inc., and he does not directly or indirectly exercise substantial
control over ABC, Inc. Therefore, Matt Johnson is not a beneficial owner.

If a reporting company is created or registered on or after January 1, 2024, the reporting company
will also need to report information about itself, its beneficial owners, and its company applicants.
If a reporting company was created or registered before January 1, 2024, the reporting company
only needs to provide information about itself and its beneficial owners. The reporting company
does not need to provide information about its company applicants.

A company applicant is:

 The individual who directly files the document that creates, or first registers, the reporting
company; and
 The individual that is primarily responsible for directing or controlling the filing of the
relevant document.

Note: No reporting company will have more than two applicants.

The information that a reporting company must report about itself includes:
 The company’s legal name;
 Any company trade names, “doing business as” (d/b/a) names, or “trading as” (t/a)
names;
 The current street address of its principal place of business if that address is in the United
States, or, for reporting companies whose principal place of business is outside the
United States, the current address from which the company conducts business in the
United States;
 The company’s jurisdiction of formation or registration; and
 The company’s TIN.

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The information that a reporting company must report about a beneficial owner or company
applicant includes:
 The individual’s name, date of birth, and address; and
 A unique identifying number for the individual from an acceptable identification document
(examples include driver's licenses, passports, or identification documents issued by a
U.S. state or local government or Indian tribe).

Note: The reporting company must submit an image of such identification document to
FinCEN.

A reporting company created or registered to do business before January 1, 2024, will have until
January 1, 2025 to file its initial beneficial ownership information report. Under the initial BOI
reporting requirements, a reporting company created or registered on or after January 1, 2024,
would have 30 days to file its initial beneficial ownership information report. On November 29, 2023,
FinCEN issued a final rule, extending the filing deadline from 30 days to 90 days for entities created
or registered on or after January 1, 2024, and before January 1, 2025. FinCEN will begin accepting
beneficial ownership information reports on January 1, 2024, and there is no fee for submitting the
report.

Under the CTA, FinCEN can disclose the beneficial ownership information to the following
requesters:
 U.S. federal agencies engaged in national security, intelligence, and law enforcement
activities;
 State, local, and tribal law enforcement agencies with court authorization;
 The U.S. Department of the Treasury;
 Financial institutions using beneficial ownership information to conduct legally required
customer due diligence, provided the financial institutions have their customer’s consent
to retrieve the information;
 Federal and state regulators assessing financial institutions for compliance with legally
required customer due diligence obligations; and
 Foreign law enforcement agencies and certain other foreign authorities who submit
qualifying requests for the information through a U.S. federal agency.

As discussed, many taxpayers may be unaware of the existence of these reporting requirements
that are quickly approaching. FinCEN estimates approximately 32.6 million reports will be filed
initially, with an additional 5 million filings annually for the next nine years. Significant penalties can
result from failure to comply with these new reporting requirements. Any person who willfully
provides false or fraudulent information to a reporting company or willfully fails to file a complete
initial or updated report with FinCEN is subject to a $500-per-day fine up to $10,000 and
imprisonment for up to two years.

Income from U.S. Savings Bonds & Qualified Education Expenses

Taxpayers who pay qualified higher education expenses in tax years 2022 and 2023 and redeemed
any qualified U.S. savings bonds (Series EE bonds issued after 1989 and Series I bonds) are
exempt from including that amount in income if their MAGI falls within specific ranges. The 2023
phaseouts begin at MAGI above $137,800 for MFJ taxpayers and $91,850 for all other filers. The
exclusion is completely phased out for MFJ taxpayers with MAGI of $167,800 or more and all other
filers with MAGI of $106,850 or more. The 2024 phaseouts begin at MAGI above $145,200 for MFJ
taxpayers and $96,800 for all other filers. The exclusion is completely phased out for MFJ taxpayers
with MAGI of $175,200 or more and all other filers with MAGI of $111,800 or more.

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Social Security and Rollovers From §529 to ABLE Program

Social Security Tax

The maximum amount of wages subject to Social Security taxes (12.4%) (OASDI) for 2023 is
$160,200. This amount will increase to $168,600 for tax year 2024. The employer’s maximum share
in 2023 is $9,932.40 (6.2%) and increases to $10,453.20 for the 2024 tax year. The employee’s
share (6.2%) is withheld from wages by the employer. The employer will not withhold Social
Security wages once an employee exceeds the wage limit. The maximum amount on any W-2 in
box 4 should be $10,453.20 in 2023. On the other hand, there is no limit to wages subject to
Medicare tax of 2.9% (1.45% for the employer and 1.45% for the employee).

Self-employed individuals are subject to Social Security and Medicare tax. This is called self-
employment tax. The self-employment tax is based on 92.35% of the taxpayer’s net profit. The
amount of net profit subject to the Social Security portion of self-employment tax is not to exceed
$160,200 in 2023. The maximum net profit for 2024 subject to the Social Security portion of self-
employment tax is $168,600. There is no limit on the amount of net profit subject to Medicare tax.
Self-employed individuals pay the base amount of tax (12.4% for Social Security and 2.9% for
Medicare), but the taxpayer can deduct half of their self-employment tax as an adjustment to
income on Schedule 1 (Form 1040), line 15 (on the 2022 form).

Rollovers From §529 to ABLE Programs

The annual contribution for an ABLE account is $17,000 for tax year 2023 and $18,000 for tax year
2024. The new tax law changes enacted by the TCJA provide that rollovers from §529 plans,
coupled with contributions made to the designated beneficiary’s ABLE account (other than certain
permitted contributions of the designated beneficiary’s compensation), cannot exceed the annual
ABLE contribution limit.

Foreign Earned Income Exclusion

If the taxpayer claimed the foreign earned income exclusion, housing exclusion, or housing
deduction on Form 2555, they must figure their tax using the Foreign Earned Income Tax
Worksheet.

If the taxpayer does not claim the foreign housing exclusion but otherwise qualifies, they can claim
the foreign earned income exclusion using Form 2555.

The maximum foreign earned income exclusion for tax year 2024 is $126,500, increased from
$120,000 for tax year 2023 to offset inflation. The maximum amount of foreign housing expenses
allowed for 2023 is $36,000 ($120,000 x 0.30), and the maximum amount allowed for 2024 is
$37,950 ($126,500 x 0.30).

Above-the-Line (1040) Deduction Changes

Educator Expenses
For tax year 2023 and 2024, the educator expenses are $300. If two qualified educators are married
and filing a joint return, they can deduct up to $600 of unreimbursed expenses in 2023 and 2024.
Neither spouse may deduct more than $300 of qualified expenses. Eligible educator expenses to
include personal protective equipment, disinfectant, and other supplies used for the prevention of
the spread of COVID-19.

Copyright © 2023, The Income Tax School, Inc. – All Rights Reserved Page 15.11
Health Savings Accounts
A health savings account (HSA) increased limits for 2023 and 2024 are shown below.

Minimum Maximum Out-of-Pocket Contribution Limit

Coverage Deductible Expense Limit
Type
2023 2024 2023 2024 2023 2024
Self $1,500 $1,600 $7,500 $8,050 $3,850 $4,150
Family $3,000 $3,200 $15,000 $16,100 $7,750 $8,300
6

Catch-up contributions for HSA beneficiaries age 55 and older are $1,000.

Medical Savings Accounts

The tax year 2023 and 2024 limitation increases are shown in the chart below.

2023 2023 2023 Maximum 2023

Coverage
Minimum Maximum Out-of-Pocket Contribution
Type
Deductible Deductible Expense Limit Limit
65% of annual
Self $2,650 $3,950 $5,300
deductible
75% of annual
Family $5,300 $7,900 $9,650
deductible

2024 2024 2024 Maximum 2024

Coverage
Minimum Maximum Out-of-Pocket Contribution
Type
Deductible Deductible Expense Limit Limit
65% of annual
Self $2,800 $4,150 $5,550
deductible
75% of annual
Family $5,550 $8,350 $10,200
deductible

Income Limits for Student Loan Interest Deduction

For tax year 2023 and 2024, the amount of the student loan interest deduction is gradually reduced
if the taxpayer’s filing status is MFJ, Single, HOH, or QSS, and modified AGI is within the amounts
noted in the table below.

Filing Status Modified Adjusted Gross Income

MFJ Over $165,000 and Under $195,000
MFS No Deduction Allowed
Single/HOH/QSS Over $80,000 and Under $95,000

Eligible taxpayers may deduct up to $2,500 of interest paid on qualified education loans for college
or vocational school expenses as an adjustment to income.

6
Rev. Proc. 2022-24, pages 1-2

Copyright © 2023, The Income Tax School, Inc. – All Rights Reserved Page 15.12
Moving Expenses
The standard mileage rate for moving expenses remains at 22 cents per mile for the 2023 tax year.

The tax year 2024 moving mileage rate had not been released by the IRS at the time this update
was released. Once the mileage rate has been released, we will add another addendum.

IRA Contributions
There are two basic types of IRA accounts:
1. Traditional IRA – contributions can be deductible and nondeductible. Contributions are
made pretax.
2. Roth IRA – contributions are nondeductible. Contributions are made after tax.

Retirement Plan Contribution Limits

Limits apply to both types of IRA. For tax year 2023, the contribution amount is as follows:
 $6,500 for taxpayers under the age of 50
 $7,500 for taxpayers ages 50 and over (a $1,000 catch-up contribution is allowed for
taxpayers ages 50 and older)

For tax year 2024, the contribution amount is as follows:

 $7,000 for taxpayers under the age of 50; and
 $8,000 for taxpayers age 50 and over (a $1,000 catch-up contribution is allowed for
taxpayers age 50 and older).

Retirement Plan Contribution Limits

In 2023, the maximum regular deferral amount a taxpayer may elect to defer into their 401(k) (for-
profit/private companies), 403(b) (tax-exempt organizations, hospitals, public education), 457 (state
and local government)), or Thrift Savings Plan (federal government employees) is $22,500. For
employees age 50 and older, the catch-up provision in 2023 is $7,000. In 2024, the maximum
elective deferral amount is $23,000 for these types of plans. The catch-up provision increases to
$7,500 in 2023. In 2023, the maximum deferral contribution for SIMPLE plans is $15,500 ($19,000
for employees age 50 and older). In 2024, the maximum deferral contribution for SIMPLE plans is
$15,500 ($19,000 for employees ages 50 and older).

Contribution and Compensation Limits by

2023 2024
Plan Type
401(k), 403(b), 457, Thrift Savings Plan elective
$ 22,500 $ 23,000
deferrals
IRA Contribution Limit $ 7,500 $ 7,500
Catch-up contribution limit for age 50 and over $ 7,500 $ 7,500
Annual defined contribution limit $ 66,000 $ 69,000
Annual compensation limit $330,000 $345,000
SIMPLE elective deferrals $ 15,500 $ 16,000
Catch-up contribution limit for age 50 and over $ 3,500 $ 3,500
25% of employee’s 25% of employee’s
SEP contribution limit compensation or compensation or
$ 66,000 $ 69,000
SEP minimum compensation limit $ 750 $ 750
SEP annual compensation limit $330,000 $345,000
403(b) elective deferrals $ 22,500 $ 23,000

Copyright © 2023, The Income Tax School, Inc. – All Rights Reserved Page 15.13
IRA Contribution Deductions for 2023 and 2024
Effect of MAGI on IRA Deduction if Covered
by a Retirement Plan at Work – 2023
If the Taxpayer’s Filing AND their modified adjusted gross
Then they can take ...
Status Is … income (MAGI) is …
$73,000 or less a full deduction.
Single or
more than $73,000
HOH
but less than $83,000 a partial deduction.
$83,000 or more no deduction.
MFJ or
$116,000 or less a full deduction.
QSS
more than $116,000
but less than $136,000 a partial deduction.
MFS
$136,000 or more no deduction.
If the taxpayer files separately and did not live with their spouse at any time during the year, their IRA deduction is determined under the "Single" filing
status.
9

Effect of MAGI on IRA Deduction if Covered

by a Retirement Plan at Work – 2024
If the Taxpayer’s Filing AND their modified adjusted gross
Then they can take ...
Status Is … income (MAGI) is …
$77,000 or less a full deduction.
Single or more than $77,000
a partial deduction.
HOH but less than $87,000
$87,000 or more no deduction.
$123,000 or less a full deduction.
MFJ or more than $123,000
a partial deduction.
QSS but less than $143,000
$143,000 or more no deduction.
less than $10,000 a partial deduction.
MFS
$10,000 or more no deduction.
If the taxpayer files separately and did not live with their spouse at any time during the year, their IRA deduction is determined under the "Single" filing
status.
10

9
2022 IRA Contribution and Deduction Limits Effect of Modified AGI on Deductible Contributions If You ARE Covered by a
Retirement Plan at Work | Internal Revenue Service (irs.gov)
10
2023 IRA Deduction Limits - Effect of Modified AGI on Deduction if You Are Covered by a Retirement Plan at Work |
Internal Revenue Service (irs.gov)

Copyright © 2023, The Income Tax School, Inc. – All Rights Reserved Page 15.14
 Effect of MAGI on IRA Deduction if NOT Covered
by a Retirement Plan at Work – 2023
If the Taxpayer’s Filing AND their modified adjusted gross
Then they can take ...
Status Is … income (MAGI) is …
Single,
HOH, any amount a full deduction.
or QSS
MFJ or MFS with a
spouse who is not covered any amount a full deduction.
by a plan at work
$218,000 or less a full deduction.
MFJ with a spouse who is more than $218,000
a partial deduction.
covered by a plan at work but less than $228,000
$228,000 or more no deduction.
MFS with a spouse who is less than $10,000 a partial deduction.
covered by a plan at work $10,000 or more no deduction.
If the taxpayer files separately and did not live with their spouse at any time during the year, their IRA deduction is determined under the "Single" filing
status.
11

Effect of MAGI on IRA Deduction if NOT Covered

by a Retirement Plan at Work – 2024
If the Taxpayer’s Filing AND their modified adjusted gross
Then they can take ...
Status Is … income (MAGI) is …
Single,
HOH, any amount a full deduction.
or QSS
MFJ or MFS with a
spouse who is not covered any amount a full deduction.
by a plan at work
$230,000 or less a full deduction.
MFJ with a spouse who is more than $230,000
a partial deduction.
covered by a plan at work but less than $240,000
$240,000 or more no deduction.
MFS with a spouse who is less than $10,000 a partial deduction.
covered by a plan at work $10,000 or more no deduction.
If the taxpayer files separately and did not live with their spouse at any time during the year, their IRA deduction is determined under the "Single" filing
status.
12

11
2022 IRA Contribution and Deduction Limits Effect of Modified AGI on Deductible Contributions if You are NOT Covered
by a Retirement Plan at Work | Internal Revenue Service (irs.gov)
12
2023 IRA Deduction Limits - Effect of Modified AGI on Deduction if You Are NOT Covered by a Retirement Plan at Work
| Internal Revenue Service (irs.gov)

Copyright © 2023, The Income Tax School, Inc. – All Rights Reserved Page 15.15
Roth IRA
Roth IRA contribution limits for 2023 are reduced (phased out) based on the following MAGI levels:

Phased Out
Phaseout Begins
Filing Status Completely
(Modified AGI)
(Modified AGI)
MFJ or QSS $218,000 $228,000
Single, HOH, MFS and did not live with spouse at
$138,000 $153,000
any time during 2022
MFS and lived with spouse at any time during 2022 $ 0 $ 10,000

The following Roth IRA limits and phaseouts are based on the following 2024 MAGI levels:

Phased Out
Phaseout Begins
Filing Status Completely
(Modified AGI)
(Modified AGI)
MFJ or QSS $230,000 $240,000
Single, HOH, MFS and did not live with spouse at
$146,000 $161,000
any time during 2023
MFS and lived with spouse at any time during 2023 $ 0 $ 10,000

In 2023, the IRA deduction phaseout thresholds increased to $218,000 and $228,000 for an IRA
contributor not covered by a workplace retirement plan and is married to a taxpayer who is covered.
The phaseout thresholds are the same for a Roth IRA in 2023 for taxpayers filing MFJ or QSS. For
Single and HOH taxpayers, the phaseout thresholds for a Roth IRA are $138,000 and $153,000 in
2022. The 2024 IRA deduction phaseout thresholds for a taxpayer not covered by a workplace
retirement plan who is married to a covered taxpayer are $230,000 and $240,000. The phaseout
thresholds are the same for a Roth IRA plan for taxpayers filing MFJ and QSS. For Single and HOH
taxpayers, the phaseout thresholds for Roth IRA contributions in 2024 are $146,000 and $161,000.

Reminder: Because Roth IRA contributions are made with after-tax dollars, qualified Roth
distributions are tax-free and exempt from federal (and generally state) tax withholding.

Qualified Business Income (QBI)

QBI - Calculation for Individuals with Income Over the Threshold but
Under the Phase-In Range
For tax years beginning in 2023, the threshold amounts, and phase-in range amounts are as
follows:

Filing Status Threshold Amount Phase-in Range Amount

MFJ Individuals $340,100 $440,100
MFS Individuals $170,050 $220,050
All Other Returns $170,050 $220,050

Copyright © 2023, The Income Tax School, Inc. – All Rights Reserved Page 15.16
For tax years beginning in 2024, the threshold amounts, and phase-in range amounts are as
follows:

Filing Status Threshold Amount Phase-in Range Amount

MFJ Individuals $383,900 $483,900
MFS Individuals $191,950 $241,950
All Other Returns $191,950 $241,950

Fringe Benefits

Adoption Assistance Programs

For 2023, the maximum amount that can be excluded from an employee’s gross income for the
adoption of a special needs child is $15,950. For all other adoptions, the maximum amount that
can be excluded for adoption assistance with qualified adoption expenses is also $15,950. The
2024 maximum adoption exclusion is $16,810.

The 2023 gross income phaseout begins at MAGI over $239,230 and is completely phased out at
MAGI of $279,230 or more. The 2023 gross income phaseout begins at MAGI over $252,150 and
is completely phased out at MAGI of $292,150 or more.

Health Flexible Spending Arrangements (FSAs)

Employees can use an FSA to cover medical costs not covered by health insurance. Employee
contributions will be made through payroll deductions and will be excluded from income tax, Social
Security tax, and Medicare tax. Employers can also contribute to an employee’s plan. During the
year, employees can use these funds to cover medical expenses not covered by their health
insurance, such as health insurance copays and deductibles, eyeglasses, dental expenses,
hearing aids, and other medical devices. Generally, all or most of the funds in an FSA must be
used by the end of the year or forfeited. Employers can (but are not required to) offer an option to
carry over to the next plan year. In 2023, the maximum carryover amount is $610, increasing to
$640 in 2024.

For 2023, the maximum employee pretax contribution to an FSA was $3,050. For 2024, the
maximum employee pretax contribution to an FSA is $3,200.

A dependent care assistance program (DCAP) allows an employee to be reimbursed for eligible
dependent care expenses so that the employee and their spouse may work, look for work, or attend
school full-time. The employer sets the minimum and maximum an employee contributes, subject
to an annual limitation. In 2023 and 2024, the dollar limit for employer-provided dependent care
FSA contributions reverts to $5,000 for married couples filing jointly and $2,500 for married couples
filing separately.

Bicycle Commuting and Other Transportation Benefits Suspended

Transportation fringe benefits for 2023 and 2024 that can be excluded from employee income are
listed in the table below.

Maximum Exclusion (Per Month) 2023 2024

Qualified parking $ 300 $ 315
Transit passes/commuter highway vehicle $ 300 $ 315
Qualified bicycle commuting reimbursement $ 0 $ 0

Copyright © 2023, The Income Tax School, Inc. – All Rights Reserved Page 15.17
In 2018 through 2025, employers can no longer deduct the fringe benefits paid to employees for
qualified parking and transit passes/commuter highway vehicles. The employee does not need to
include these benefits in income if they are received.

In 2018 through 2025, employers can deduct qualified bicycle commuting reimbursements of up to
$20/month as a business expense. The employee must include these benefits in income if they are
received.

Itemized Deductions and Exclusions

Standard Mileage Rates

In 2023, the standard mileage rate increases to 65.5 cents per mile for business use. In 2023, the
standard mileage rate for medical and moving purposes remains at 22 cents per mile. The standard
mileage rate for charitable miles is set by statute, not the IRS, and remains at 14 cents per mile.

Jan – Jun 2022 Jul – Dec 2022

Purpose 2023 Rates
Rates Rates
Business $0.585 per mile $0.625 per mile $0.655 per mile
Medical/Moving $ 0.18 per mile $ 0.22 per mile $ 0.22 per mile
Charitable $ 0.14 per mile $ 0.14 per mile $ 0.14 per mile

At the time of this update, the IRS has not released the 2024 standard mileage rate. We will provide
an update on this topic once the information has been released.

The business standard mileage rate includes an amount treated as depreciation for the vehicle.

Deductibility Limits for Long-Term Care Premiums

The inflationary amount of long-term care premiums that can be included as a medical expense on
Schedule A (Form 1040) generally increases each year for inflation and is age dependent.
However, for tax year 2024 the amount included as a medical expense has decreased slightly. See
the chart below for the per person limitation on deductible annual long-term care insurance
premiums.

Age at the end of THEN the most the taxpayer THEN the most the taxpayer
the tax year: can deduct for 2023 is: can deduct for 2024 is:
40 or less $ 480 $ 470
41-50 $ 890 $ 880
51-60 $1,790 $1,760
61-70 $4,770 $4,710
71 and over $5,960 $5,880

Federal Estate and Gift Tax Exclusions

Federal Estate Tax Exclusion

A unified credit is available for gift and estate taxes. The credit offsets tax up to the applicable
exclusion amount or exemption amount. The exemption amount was set at $5 million in 2011 and

Copyright © 2023, The Income Tax School, Inc. – All Rights Reserved Page 15.18
was indexed for inflation in later years. The federal estate tax exclusion amount for 2017 was
$5,490,000 or $10,980,000 for married taxpayers.
 In 2018, the TCJA doubled the base exemption amount from $5 million to $10 million and
was $11.18 million per person ($22.36 million for MFJ).
 In 2019, the exclusion amount was adjusted upward to $11.4 million per person ($22.8
million for MFJ). The marginal tax rate for income in excess of the exemption amount
remained at 40%.
 For 2021, the federal exclusion amount was $11.7 million per individual ($23.4 million for
MFJ).
 For 2022, the federal exclusion amount is $12.06 million per individual ($23.12 million for
MFJ).
 For 2023, the federal exclusion amount is $12.92 million per individual ($25.84 million for
MFJ).
 For 2024, the federal exclusion amount is $13.61 million per individual ($27.22 million for
MFJ).

Federal Gift Tax Exclusion

The federal gift tax exclusion for 2024 increases to $18,000 ($36,000 for MFJ). The federal gift tax
exclusion was $17,000 in 2023 ($34,000 for MFJ).

Credits

Adoption Credit
or 2024, the maximum adoption credit is the amount of qualified adoption expenses up to $16,810,
an increase from $15,950 for 2023. The credit allowed for adopting a child with special needs is
$16,810, also increased from $15,950 for 2023. The maximum exclusion from income for benefits
under an employee adoption assistance program has increased to $16,810 for 2024. The 2023
phaseout began at MAGI above $239,230 and was completely phased out at MAGI of $279,230 or
more. The 2024 phaseout begins at MAGI above $252,150 and is completely phased out at MAGI
of $292,150 or more. The adoption credit is a nonrefundable credit figured on Form 8839, then
transferred to Schedule 3 (Form 1040), line 6c on the 2023 form.

For 2023, IF the MAGI is... THEN the income limit...

$239,230 or less will not affect the credit or exclusion
$239,230-$279,230 will reduce the credit or exclusion
$279,230 or more will eliminate the credit or exclusion

For 2024, IF the MAGI is... THEN the income limit...

$252,150 or less will not affect the credit or exclusion
$252,150-$292,150 will reduce the credit or exclusion
$292,150 or more will eliminate the credit or exclusion

Copyright © 2023, The Income Tax School, Inc. – All Rights Reserved Page 15.19
American Opportunity and Lifetime Learning Education Credits
The AOC credit is 100% of the first $2,000 of qualified expenses, plus 25% of the next $2,000. The
maximum credit allowed is $2,500 per eligible student. If the credit is unused due to the lack of tax
liability, 40% (up to $1,000) is refundable. For tax years 2023 and 2024, a reduction in the credit
begins when a taxpayer’s AGI exceeds $80,000 ($160,000 for MFJ). Taxpayers with MAGI over
the $90,000 ($180,000 for MFJ) threshold are not eligible to claim the credit. The MAGI phaseout
amounts remain the same for tax year 2023.

The maximum lifetime learning credit is $2,000 per taxpayer, per return (20% of qualified education
expenses up to $10,000). As a result of the CAA 2021 for tax years beginning after December 31,
2020, the lifetime learning tax credit that a taxpayer may otherwise claim is phased out ratably for
taxpayers with MAGI above $80,000 and less than $90,000 ($160,000 and $180,000 for married
individuals who file a joint return). Thus, taxpayers with MAGI above $90,000 (or $180,000 for joint
filers) may not claim an education tax credit.

MFS taxpayers do not qualify for these credits.

American Opportunity Credit Lifetime Learning Credit

Number of years of post- All years with qualifying
Four Years
secondary education expenses
Tuition, Books, Supplies, Tuition, Books, Supplies,
Qualified Expenses Equipment, Fees required for Equipment, Fees required
field of study for field of study
100% of first $2,000 of qualified 20% of qualified expenses
Maximum Credit expenses plus 25% of next up to $10,000.
$2,000. Maximum credit $2,500 Maximum credit $2,000
2023/2024 MAGI phaseout
begins (Single, HOH, QSS, $80,000 ($160,000) $80,000 ($160,000)
MFJ)
2023/2024 limit on MAGI
$90,000 ($180,000) $90,000 ($180,000)
(Single, HOH, QSS, MFJ)
Refundable 40% refundable up to $1,000 Not refundable

Child Tax Credit, Additional Child Tax Credit, and Family Credit
Certain taxpayers are eligible to receive a child tax credit (CTC) of $2,000 per qualifying child. The
maximum refundable amount is $1,600 for tax year 2023, and $1,700 for tax year 2024. All eligibility
requirements must be met.

Copyright © 2023, The Income Tax School, Inc. – All Rights Reserved Page 15.20
Earned Income Tax Credit
The updated 2023 and 2024 EIC credit amounts, threshold amount, and complete phaseout
amount are shown in the charts below.

2023 EIC Number of Qualifying Children

Item Zero One Two Three or More
Earned Income Amount $7,840 $11,750 $16,510 $16,510
Investment Income Limit $11,000 $11,000 $11,000 $11,000
Maximum Credit Amount $600 $3,995 $6,604 $7,430
MFJ
Threshold Phaseout Amount $16,378 $28,120 $28,120 $28,120
Completed Phaseout Amount $24,210 $53,120 $59,478 $63,398
All Other Filing Statuses
Threshold Phaseout Amount $9,800 $21,560 $21,560 $21,560
Complete Phaseout Amount $17,640 $46,560 $52,918 $56,838

2024 EIC Number of Qualifying Children

Item Zero One Two Three or More
Earned Income Amount $8,260 $12,390 $17,400 $17,400
Investment Income Limit $11,600 $11,600 $11,600 $11,600
Maximum Credit Amount $632 $4,213 $6,960 $7,830
MFJ
Threshold Phaseout Amount $17,250 $29,640 $29,640 $29,640
Completed Phaseout Amount $25,511 $56,004 $62,688 $66,819
All Other Filing Statuses
Threshold Phaseout Amount $10,330 $22,720 $22,720 $22,720
Complete Phaseout Amount $18,591 $49,084 $55,768 $59,899

Retirement Saver’s Credit Phaseout

The Retirement Saver’s Credit is based on the amount of MAGI reported on Form 1040. The
amount of the credit is 50%, 20% or 10% of:
 Contributions you make to a traditional or Roth IRA,
 Elective salary deferral contributions to a 401(k), 403(b), governmental 457(b), SARSEP,
or SIMPLE plan,
 Voluntary after-tax employee contributions made to a qualified retirement plan (including
the federal Thrift Savings Plan) or 403(b) plan,
 Contributions to a 501(c)(18)(D) plan, or
 Contributions made to an ABLE account for which you are the designated beneficiary

Contributions made as a result of a rollover do not qualify for the saver’s credit. Eligible contributions
may be reduced by recent distributions received from a retirement plan, IRA, or from an ABLE
account.

The maximum contribution amount that qualifies for the credit is $2,000 ($4,000 if MFJ), making
the maximum credit $1,000 ($2,000 if MFJ).

The following charts provide the phaseout ranges and credit percentage for tax year 2023 and
2024.

Copyright © 2023, The Income Tax School, Inc. – All Rights Reserved Page 15.21
 2023 Retirement Saver’s Credit Phaseout
Credit Rate MFJ HOH All Other Files*
50% of the AGI not more than AGI not more than AGI not more than
contribution $43,500 $32,625 $21,750
20% of the
$43,501-$47,500 $32,626-$35,625 $21,751-$23,750
contribution
10% of the
$47,501-$73,000 $35,626-$54,750 $23,751-$36,500
contribution
0% of the
More than $73,000 More than $54,750 More than $36,500
contribution
*Single, MFS, or QSS

2024 Retirement Saver’s Credit Phaseout

Credit Rate MFJ HOH All Other Files*
50% of the AGI not more than AGI not more than AGI not more than
contribution $46,000 $34,500 $23,000
20% of the
$46,001-$50,000 $34,501-$37,500 $23,001-$25,000
contribution
10% of the
$50,001-$76,500 $37,501-$57,375 $25,001-$38,250
contribution
0% of the
More than $76,500 More than $57,375 More than $38,250
contribution
*Single, MFS, or QSS

Clean Vehicle Credit

Prior to the IRA, taxpayers could claim a credit for a new qualified plug-in electric drive motor vehicle
placed in service by the taxpayer during the taxable year. The base amount of the credit was
$2,500. In the case of a vehicle which draws propulsion energy from a battery with not less than 5
kilowatt hours of capacity, the amount of the credit is $2,500, plus $417 for each kilowatt hour of
capacity in excess of 5 kilowatt hours (not to exceed $5,000), for a total maximum credit amount of
$7,500. Heavier fuel cell vehicles qualified for up to a $40,000 credit. The credit phased out after
the manufacturer sold its 200,000th electric drive motor vehicle, and for certain vehicles
manufactured by Tesla and GM.

The IRA removed the limitation on the number of vehicles eligible for the credit, applicable for all
vehicles sold after December 31, 2022. The IRA also changed the dollar amount of the credit,
allowing taxpayers to receive a $3,750 credit for meeting a “critical minerals requirement” and
$3,750 for meeting a “battery component requirement”. The maximum credit per vehicle is $7,500.
The credit may only be claimed to the extent of the taxpayer’s tax due and is not refundable. The
credit cannot be carried forward to the extent it is claimed for personal use; however, the credit
may be carried forward to the extent it is claimed for business use. Only one taxpayer may claim
the Clean Vehicle Credit per vehicle placed in service (i.e., the credit cannot be allocated or
prorated between multiple taxpayers).

In the case of MFJ taxpayers, either spouse may be identified as the owner claiming the new vehicle
credit. For vehicles placed in service January 1, 2024 or later, buyers will only be able to claim the
clean vehicle credit if the seller has registered with the IRS and successfully submits a seller report
through the IRS Energy Credits Online Portal. The Clean Vehicle Credit is claimed on Form 8936,
Qualified Plug-in Electric Drive Motor Vehicle Credit, in the year that the vehicle is placed in service,
and the VIN of the new vehicle must be reported on this form.

Copyright © 2023, The Income Tax School, Inc. – All Rights Reserved Page 15.22
Per IRS FAQs, a new clean vehicle for purposes of the Clean Vehicle Credit is a vehicle that: 37
 Is placed in service on or after January 1, 2023 and acquired by a taxpayer for original
use;
o Note: Original use is defined as “the first use to which the vehicle is put after it is
sold, registered, or titled”
 Is not acquired for resale;
 Is manufactured by a qualified manufacturer;
 Is manufactured primarily for use on public streets, roads, and highways, with at least
four wheels;
 Has a gross vehicle weight of less than 14,000 pounds;
 Is 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; and
 Has final assembly in North America.

Fuel Cell Vehicles are also considered new clean vehicles for purposes of the Clean Vehicle Credit
if:
 Original use begins with the taxpayer;
 Final Assembly occurs in North America; and
 The seller of the vehicle provides a report to the IRS.

Under the IRA, the $7,500 clean vehicle credit consists of a $3,750 credit for meeting a “critical
minerals requirement” and $3,750 for meeting a “battery component requirement” as follows:
 Vehicles meeting neither requirement will not be eligible for the Clean Vehicle Credit.
 Vehicles meeting only one requirement may be eligible for a $3,750 credit.
 Vehicles meeting both requirements may be eligible for the full $7,500 credit.

The critical mineral and battery component requirements of the Clean Vehicle Credit apply to
vehicles placed in service on or after April 18, 2023. Vehicles ordered or purchased prior to but
placed in service on or after April 18, 2023 will be subject to the critical mineral and battery
component requirements.

The amount of the Clean Vehicle Credit depends on when the taxpayer placed the vehicle in
service, regardless of purchase date. For vehicles placed in service January 1, 2023 through April
17, 2023 the credit is calculated as follows:
 $2,500 base amount
 Plus $417 for a vehicle with at least 7 kilowatt hours of battery capacity
 Plus $417 for each kilowatt hour of battery capacity beyond 5 kilowatt hours
 Up to $7,500 total.

For vehicles placed in service January 1, 2023 through April 17, 2023, the minimum credit will
generally be $3,751 ($2,500 + (3 x $417)), the credit amount for a vehicle with the minimum 7
kilowatt hours of battery capacity.

For vehicles placed in service April 18, 2023 and after, the credit is calculated as follows:
 $3,750 if the vehicle meets the critical minerals requirement only;
 $3,750 if the vehicle meets the battery components requirement only; and
 $7,500 if the vehicle meets both requirements.

A vehicle that does not meet either requirement will not be eligible for the Clean Vehicle Credit.

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The critical minerals requirement essentially states that critical minerals contained in the battery
must be:
 Extracted or processed in the United States, in any country with which the United States
has a free trade agreement in effect, or recycled in North America; and
 Equal to or greater than the applicable percentage:
o 40% for a vehicle placed in service after December 31, 2022 (and after April 18,
2023), and before January 1, 2024;
o 50% for a vehicle placed in service during calendar year 2024;
o 60% for a vehicle placed in service during calendar year 2025;
o 70% for a vehicle placed in service during calendar year 2026; and
o 80% for a vehicle placed in service after December 31, 2026.

The battery components requirement essentially states that the battery’s components must be:
 Manufactured or assembled in North America; and
 Equal to or greater than the applicable percentage:
o 50% for a vehicle placed in service after December 31, 2022 (and after April 18,
2023), and before January 1, 2024;
o 60% for a vehicle placed in service during calendar year 2024;
o 60% for a vehicle placed in service during calendar year 2025;
o 70% for a vehicle placed in service during calendar year 2026;
o 80% for a vehicle placed in service during calendar year 2027;
o 90% for a vehicle placed in service during calendar year 2028; and
o 100% for a vehicle placed in service during calendar year 2029 and thereafter.

Per the IRS FAQs:

 The only change to the existing electric vehicle credit that takes effect after August 16,
2022 and before the end of 2022 is the introduction of the North America final assembly
requirement. Otherwise, the rules in effect before enactment of the IRA for the electric
vehicle credit remain in effect, including the phaseout for manufacturers that have sold over
200,000 vehicles in the United States.
 If an individual entered into a written binding contract to purchase a qualifying electric
vehicle after December 31, 2021, and before the date of enactment of the IRA (August 16,
2022), the changes in the IRA will not impact the individual’s clean vehicle tax credit. The
individual may claim the credit based on the rules that were in effect before August 16,
2022. Per the IRS, a “written binding contract” is a nonrefundable deposit or down payment
of 5% of the purchase price.

A list of eligible clean vehicles that qualified manufacturers have indicated meet the IRS
requirements is located at www.fueleconomy.gov/newtaxcredit. This list will be updated as
manufacturers continue to provide information about eligible clean vehicles. Individuals can
typically find the vehicle’s weight, battery capacity, final assembly location, and VIN on the vehicle’s
window sticker. If the VIN is known, it can confirm final assembly information. Final confirmation of
whether a vehicle qualifies for the credit should be done at the time of purchase, and the seller
must provide the buyer with a report about a vehicle’s eligibility at the time of sale.

To qualify for the credit, the final assembly of the vehicle must occur in North America. The clean
vehicle credit is not allowed if the manufacturer’s suggested retail price (MSRP) is in excess of:
 $80,000 for vans, SUVs, and pickups; and
 $55,000 for all other vehicles.

A vehicle’s MSRP is the vehicle’s base retail price as suggested by the manufacturer, plus the retail
price suggested by the manufacturer for each accessory item or optional equipment attached to
the vehicle at the time of delivery to the dealer. MSRP does not include destination charges,
optional items added by the dealer, or taxes and fees. The Clean Vehicle Credit limitations are

Copyright © 2023, The Income Tax School, Inc. – All Rights Reserved Page 15.24
based on MSRP, not the actual price paid for the vehicle (i.e., if the purchase price drops below
the MSRP due to manufacturer/dealer incentives).

Final Assembly is defined as “the process by which a manufacturer produces a new clean vehicle
at, or through the use of, a plant, factory, or other place from which the vehicle is delivered to a
dealer or importer with all component parts necessary for the mechanical operation of the vehicle
included with the vehicle, whether or not the component parts are permanently installed in or on
the vehicle.”

The clean vehicle credit is disallowed if the lesser of the MAGI of the taxpayer for the current or
preceding tax year exceeds the following threshold amounts:
 $300,000 for taxpayers filing joint returns or surviving spouses;
 $225,000 for HOH taxpayers; and
 $150,000 for all other taxpayers.

Per IRS FAQs, if a partnership or an S corporation places a new clean vehicle in service and the
new clean vehicle credit is claimed by individuals who are direct or indirect partners of that
partnership or shareholders of that S corporation, the modified AGI thresholds apply to those
partners or shareholders. 38

For purposes of the Clean Vehicle Credit, the seller must provide the following information to the
taxpayer and IRS:
 Name and taxpayer identification number of the seller;
 Name and taxpayer identification number of the taxpayer (only one taxpayer may be
listed on the seller report – in the event of multiple owners, only the taxpayer that intends
to claim the credit should be listed);
 Vehicle identification number (VIN) of the new clean vehicle;
 Battery capacity of the new clean vehicle;
 Verification that the taxpayer is the original user of the new clean vehicle;
 The date of the sale and the sale price of the vehicle;
 Maximum credit allowable for the new clean vehicle being sold;
 For sales after December 31, 2023, the amount of any transfer credit applied to the
purchase; and
 A declaration under penalties of perjury from the seller.

The seller must provide such report to the taxpayer no later than the date of purchase. Taxpayers
that did not receive a report from the seller because their vehicle was previously ineligible, but their
vehicle is now eligible (i.e., due to a change in the vehicle’s classification and MSRP limitation) may
request and receive a report from the seller after the vehicle’s purchase date.

The clean vehicle credit will cease to apply to vehicles placed in service after December 31, 2032.
For vehicles placed in service after 2023, qualifying vehicles will not include any vehicle with battery
components that were manufactured or assembled by a foreign entity of concern (Iran, China,
Russia, North Korea, and Iran). Taxpayers are required to include the vehicle identification number
(VIN) on their tax return to claim a clean vehicle tax credit.

Credit for Previously Owned Clean Vehicles

The IRA created a clean vehicle credit for used vehicles, effective for sales through December 31,
2032. This credit is only available to individual taxpayers; business entities such as corporations or
partnerships are not eligible for the credit.

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New IRC §25E provides that a qualified buyer who places in service a previously owned clean
vehicle during the taxable year may take a credit equal to the lesser of:
 $4,000; or
 The amount equal to 30% of the sale price with respect to such vehicle.

The credit is not refundable and cannot be carried forward.

Per IRS FAQs, a previously owned clean vehicle is a motor vehicle that meets the following
requirements:
 The model year of the vehicle is at least two years earlier than the calendar year in which
a taxpayer acquires the vehicle;
 The purchasing taxpayer is not the original user of the vehicle;
 The vehicle was acquired for a sales price of $25,000 or less from a dealer and the
purchasing taxpayer is the first qualified buyer to claim the credit since August 16, 2022,
other than its original user; and
 Such motor vehicle is a:
o Qualified fuel cell motor vehicle with a gross vehicle weight rating of less than 14,000
pounds, or
o A vehicle made by a qualified manufacturer that meets the definition of a motor
vehicle under Title II of the Clean Air Act, has a gross vehicle weight rating of less
than 14,000 pounds, is powered to a significant extent by an electric motor with a
battery capacity of seven kilowatt hours or more, and is capable of being recharged
from an external source of electricity.

Note: The dealer selling the previously owned clean vehicle must provide a report containing
purchaser and vehicle information to the purchaser and to the IRS, containing the following
information:
 Name and taxpayer identification number of the dealer;
 Name and taxpayer identification number of the taxpayer;
 Vehicle identification number of the vehicle;
 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 the
purchase; and
 A declaration under penalties of perjury from the dealer. 39

This credit is disallowed if the taxpayer’s MAGI for the year of purchase or preceding year exceeds:
 $150,000 for MFJ taxpayers;
 $112,500 for HOH taxpayers; and
 $75,000 for all other taxpayers.

The taxpayer’s MAGI would be the lesser of MAGI in the taxable year or the prior tax year.

The IRA defines a previously owned clean vehicle as a motor vehicle:

 In which the model year is a least two years earlier than the calendar year in which the
taxpayer acquires such vehicle;
 In which the original use commenced with a person other than the taxpayer; and
 That is acquired by the taxpayer in a qualified sale, defined as the sale of a motor vehicle
by a dealer for a price of $25,000 or less.

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Copyright © 2023, The Income Tax School, Inc. – All Rights Reserved Page 15.26
The §25E credit for previously owned clean vehicles only applies to the first resale for a used
vehicle, and the buyer must purchase the used vehicle from a dealership. For vehicles placed in
service January 1, 2024 or later, buyers will only be able to claim the credit for previously owned
clean vehicles if the seller has registered with the IRS and successfully submits a seller report
through the IRS Energy Credits Online Portal. Buyers can only claim the §25E credit for previously
owned clean vehicles once every three years. The credit for previously owned clean vehicles
applies to vehicles acquired after December 31, 2022, and before January 1, 2033.

Transfer of New Clean Vehicle Credit and Previously Owned Clean Vehicles Credit
After December 31, 2023, and before December 31, 2032, taxpayers purchasing eligible new clean
vehicles or previously owned clean vehicles can elect to transfer the clean vehicle tax credit or
previously owned clean vehicle credit to an eligible entity, in exchange for a financial benefit from
the eligible entity equal to the amount of the credit. The financial benefit that reduces the purchase
price of the eligible vehicle can be in the form of cash, a partial payment, or a down payment for
the purchase of such vehicle. By making the transfer election, buyers receive an immediate
financial benefit rather than waiting to file their tax return to claim the credit. An eligible entity, also
referred to as a “registered dealer,” is generally a dealer that sells a new clean vehicle or previously
owned clean vehicle to a taxpayer and registers with the IRS.

Not later than the time of sale, the registered dealer must provide the buyer with a written disclosure
containing the following information under penalty of perjury:
 The MSRP of the new clean vehicle or the sale price of the previously owned clean
vehicle;
 The maximum amount of the credit allowable and any other incentive available for the
purchase of such vehicle;
 The amount provided by the dealer to the buyer as a condition of the buyer making the
transfer election;
 The modified AGI limitations, as applicable; and
 For previously owned clean vehicles, certification that:
o The model year of the vehicle is at least two years prior to the calendar year of
sale; and
o That the transfer is the first transfer of the vehicle since August 16, 2022, to a
person other than the person with whom the original use of such vehicle
commenced.

The registered dealer must also provide the buyer with a copy of the seller report submitted for the
vehicle, and confirmation of the successful submission of the report through the IRS Energy Credits
Online Portal. 40

All dealers and sellers must submit seller reports through the IRS Energy Credits Online Portal for
vehicles placed in service beginning January 1, 2024. The seller report submission is done at the
time of the sale through the IRS Energy Credits Online Portal. Registered dealers that provide all
required information through the IRS Energy Credits Online Portal and are in tax compliance may
become eligible to participate in the advance payment program once their registration information
is verified by the IRS. The initial registration of the dealer/seller can be completed by an individual
representative of the dealer/seller who is currently authorized to legally bind the dealer or seller in
these matters. Information collected during the initial registration includes the registered dealer’s
business EIN, address, phone number, and email. Additional information is required for dealers
registering for advance payments. Qualified manufacturers who are also direct sellers of vehicles
must complete dealer registration in order to submit seller reports and receive an advance payment
when a credit is transferred. Dealer registration expires after ten years.

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Per IRS FAQs, in order to submit seller reports for previously owned clean vehicles or register to
receive advance payments, a dealer must be licensed by a state, the District of Columbia, an Indian
tribal government, or any Alaska Native Corporation to engage in the sale of vehicles. Non-licensed
dealers and sellers must still be registered through the IRS Energy Credits Online Portal to submit
seller reports. 41

Rev. Proc. 2023-33 outlines the specific information that manufacturers, sellers, and dealers must
provide through the IRS Energy Credits Online Portal at the time of registration:
 Qualified Manufacturer Registration: An individual representative of the manufacturer
must register through the IRS Energy Credits Portal and provide required information to
request to become a qualified manufacturer.
o The individual representative of the manufacturer must be currently authorized to
legally bind the manufacturer in such matters.
o Beginning January 1, 2024, to be considered a qualified manufacturer,
manufacturers must have entered into a written agreement through the IRS
Energy Credits Online Portal.
o Beginning January 1, 2024, qualified manufacturers must file monthly written
reports through the IRS Energy Credits Online Portal by the fifteenth of the
month following the month to which each monthly written report relates.
 Seller Registration: An individual representative of the seller must register through the
IRS Energy Credits Portal and provide the required information:
o Seller name, business address, phone number, and email address;
o Seller Taxpayer Identification Number (TIN) or Employer Identification Number
(EIN);
o Proof of a state, District of Columbia, Indian tribal government, or Alaska Native
Corporation issued license to sell vehicles (for §25E sellers);
o Certification that, in the event a buyer returns a vehicle within 30 days of the time
of sale, the seller will update the seller report;
o In the case of a previously owned clean vehicle, certification that the seller will
provide each taxpayer with the following information:
 That the model year of the vehicle is at least two years prior to the
calendar year of sale, and
 That the transfer is the first transfer of the vehicle since August 16, 2022,
to a person other than the person with whom the original use of such
vehicle commenced, excluding transfers to or between dealers; and
o Such other information as may be required by the IRS Energy Credits Online
Portal.
o Note: The individual representative of the seller must be currently authorized to
legally bind the seller in such matter.
 Dealer Registration: An individual representative of the dealer must register through the
IRS Energy Credits Portal.
o The individual representative of the dealer must be currently authorized to legally
bind the dealer in such matter.
o A dealer must register at least 15 days prior to being able to receive any advance
payments.
o A dealer may register at any time after October 6, 2023, but will not become an
eligible entity until January 1, 2024.
o At the time of registration, the dealer must provide the same information as
sellers (detailed above), as well as the following information:
 Bank account information of the dealer, for purposes of receiving
electronic payments.
 Certification that the dealer will provide each taxpayer with the following
information:

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  For purposes of the clean vehicle credit, the MSRP of the new
clean vehicle, or for purposes of the previously owned vehicle
credit, the sale price of the previously owned clean vehicle;
 The maximum amount of the credit allowable and any other
incentive available for the purchase of such vehicle;
 The amount provided by the dealer to such taxpayer as a
condition of the taxpayer making the transfer election. This
amount must equal the amount of the credit potentially allowable
as to the purchase of the vehicle and such amount may be
provided in the form of cash or a down payment or partial
payment for the purchase of the vehicle; and
 The MAGI limitations.
 Certification that, no later than the time of sale of the vehicle, the dealer
will make the payment to the taxpayer (whether in cash or in the form of
a partial payment or down payment for the purchase of such vehicle) in
an amount equal to the credit otherwise allowable to such taxpayer.
 Certification that the dealer, with respect to any incentive otherwise
available for the purchase of a vehicle for which a clean vehicle credit or
previously owned clean vehicle credit is allowed, ensured that:
 The availability or use of such incentive does not limit the ability
of a taxpayer to make a transfer election, and
 Such election does not limit the value or use of such incentive;
and
 Certification that, in the event a buyer returns a vehicle within 30 days of
the time of sale, and the dealer fails to report such return through the IRS
Energy Credits Online Portal, the dealer will have an excessive payment
of any advance payment amount received for the sale of such vehicle.

The IRS may revoke a dealer’s registration to receive transferred credits and be eligible for advance
payments for any of the following reasons: 42
 The registered dealer fails to comply with any of the registration requirements;
 The registered dealer fails to satisfy the dealer tax compliance requirement;
 The registered dealer loses its license to sell vehicles;
 The IRS determines that the registered dealer provided inaccurate information to the
taxpayer regarding the vehicle eligibility or the taxpayer’s eligibility for the advance
payment program;
 The IRS determines that the registered dealer provided inaccurate information to the IRS
regarding vehicle eligibility or taxpayer eligibility for the advance payment program;
 The registered dealer fails to retain records for each taxpayer who makes a transfer
election for a period of three years; or
 The registered dealer’s registration has been suspended three times in the preceding
year.

Not later than the time of sale, the buyer must provide the registered dealer with the following
information: 43
 The date of the transfer election;
 The buyer’s taxpayer identification number/SSN;
 A photocopy of the buyer’s valid, government-issued photo identification document;
 An attestation, that either:
o The buyer’s prior year modified AGI did not exceed the modified AGI limitation,
or, if not known, to the best of the buyer’s knowledge and belief, the buyer’s prior
year modified AGI did not exceed such limitation, or

42
Rev. Proc. 2023-33.
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FS-2023-22.

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 o To the best of the buyer’s knowledge and belief, the buyer’s current year
modified AGI will not exceed the modified AGI limitation;
 For new clean vehicles, an attestation that the vehicle will be used predominantly for
personal use;
 For previously owned clean vehicles, an attestation (or declaration) that the buyer is a
qualified buyer;
 An attestation that the buyer will file an income tax return for the taxable year in which the
vehicle is placed in service, reporting eligibility for the applicable credit, the vehicle’s VIN,
and the buyer’s election to transfer the credit to the dealer and repaying any credit
amounts subject to recapture (if applicable);
 An attestation that the buyer is making this election prior to placing the vehicle in service
and this is the first or second transfer election the buyer made during the taxable year;
 An attestation that in the event the buyer exceeds the applicable modified AGI limitations,
the buyer will repay the amount received as an addition to tax for the tax year the vehicle
was placed in service; and
 An attestation that the buyer has voluntarily elected to transfer the credit.

A taxpayer can make no more than two elections to transfer a clean vehicle credit each tax year,
and buyers must transfer the entire amount of the credit allowable to the registered dealer. Such
elections could be for two clean vehicle credits or one clean vehicle credit and one previously
owned clean vehicle credit. The elections cannot be for two previously owned clean vehicle credits.
Spouses may each transfer no more than two clean vehicle credits each tax year. As such, in the
case of a joint return, each individual taxpayer may make no more than two transfer elections per
taxable year. Lastly, the transfer election is final.

Dealers who are eligible to receive advance payments should receive advanced payments via
direct deposit within 48-72 hours of a successfully submitted time of sale report and advance
payment request. As discussed, only licensed dealers may register to receive advance payments.
The IRS may suspend a registered dealer’s eligibility to participate in the advance payment
program for any of the following reasons: 44
 The IRS determines that the registered dealer provided inaccurate information to the
taxpayer regarding the vehicle’s eligibility or the taxpayer’s eligibility for the advance
payment program;
 The IRS determines that the registered dealer provided inaccurate information to the IRS
regarding the vehicle’s eligibility or taxpayer’s eligibility for the advance payment
program;
 The IRS determines that the registered dealer provided inaccurate information to the IRS
regarding its eligibility for the advance payment program;
 The registered dealer fails to satisfy the dealer tax compliance requirement;
 The IRS determines that the bank account information that the dealer provided through
the IRS Energy Credits Online Portal is not valid;
 The dealer fails to report the return of a vehicle through the IRS Energy Credits Online
Portal as required; or
 The IRS determines it is necessary to suspend the registered dealer’s registration to
prevent abuse of the advance payment program.

The IRS will accept or reject submissions of the seller report and advance payment request in real
time. Dealers who are eligible to receive advance payments may initiate an advance payment
request, beginning January 1, 2024. Dealers are required to disclose information about the
applicable income limits to buyers; however, dealers are not required to verify a buyer’s income for
a credit transfer or advance payment. If the buyer’s income exceeds the limits, dealers are not
required to repay the advance payment. Dealers cannot require buyers to transfer the clean vehicle
credit or previously owned vehicle credit.

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Certain scenarios apply if a vehicle is returned or a sale is cancelled, after a credit is transferred: 45
 If a sale of an eligible vehicle for the clean vehicle credit is cancelled before the taxpayer
places the vehicle in service, the vehicle will still be eligible for a clean vehicle credit upon
a subsequent qualifying sale to another taxpayer.
 If an eligible vehicle for the clean vehicle credit is returned within 30 days of being placed
in service, the purchaser cannot claim a clean vehicle credit with respect to the vehicle,
as it was already placed in service.
 If a previously owned clean vehicle is returned, it is not eligible for a subsequent sale if
the vehicle history reflects that such subsequent sale is not a qualified sale.
 If the vehicle history does not reflect the prior sale and return, the vehicle remains eligible
for the previously owned clean vehicle credit.
 If the taxpayer made an election to transfer the clean vehicle credit, that vehicle transfer
election is nullified, and any advance payment made pursuant to the clean vehicle
transfer rules will be recaptured from the registered dealer as an excessive payment.

The tax treatment of the transferred tax credits is as follows: 46

 Registered Dealers:
o Advance payments received by the registered dealer are not treated as a tax
credit to the dealer and may exceed the dealer’s regular tax liability.
o Advance payments received by the registered dealer are not included in the
gross income of the dealer.
o The payment made by the registered dealer to the buyer in exchange for the
transferred credit is not deductible by the dealer. This payment is treated as
repaid by the buyer to the registered dealer as part of the purchase price of the
vehicle, and as a result is treated as part of the total amount received from the
sale transaction.
o Registered dealers do not claim transferred tax credits when filing their tax
return. Registered dealers claim transferred tax credits via the advance payment
program through the IRS Energy Credits Online Portal.
 Buyers:
o The financial benefit payment made by the registered dealer to the buyer in the
form of a cash payment, down payment, or partial down payment is not includible
in the gross income of the buyer. This payment made by the registered dealer is
treated as an advance payment of the credit to the buyer on behalf of the
Secretary and the basis of the applicable eligible vehicle is reduced by the
amount of the credit.
o A buyer who makes the transfer election must file an income tax return for the
taxable year in which the vehicle transfer election is made that notes this
election, and the buyer must attach Form 8936, Clean Vehicle Credits, its
successor form, or any additional forms, schedules, or statements as prescribed
by the Commissioner.
o Buyers who transfer a credit to a registered dealer but exceed the income
limitations must repay the IRS when filing their tax return.

Credit for Qualified Commercial Clean Vehicles

The IRA creates a new IRC §45W credit for qualified commercial clean vehicles, part of the §38
general business credit. This credit is available to businesses and tax-exempt organizations. A
qualified commercial clean vehicle generally is any vehicle made by a qualified manufacturer,
acquired for use or lease by the taxpayer, not available for resale, and either:
 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, including vehicles that are not designed to perform a function of
transporting a load over public highways.
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Additionally, the qualified commercial clean vehicle generally must be 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 (or, in the case of a vehicle which has a gross vehicle weight rating of less
than 14,000 pounds, 7 kilowatt hours) and is capable of being recharged from an external source
of electricity.

The vehicle must also meet certain efficient vehicle requirements. The credit is equal to the lesser
of:
 15% of the basis of such vehicle (30% in the case of a vehicle not powered by gasoline or
diesel internal combustion engine); or
 The incremental cost of such vehicle (the excess of the purchase price for such vehicle
over the price of a comparable vehicle, meaning a vehicle powered solely by gasoline or
diesel internal combustion engine and comparable in size and use).

The §45W Credit for Qualified Commercial Clean Vehicles is limited to:
 $7,500 for light-duty vehicles (weighing less than 14,000 pounds); and
 $40,000 for all other vehicles (i.e., heavy-duty vehicles).

Certain federal, state, and local governments as well as certain tax-exempt entities may elect to
treat the Credit for Qualified Commercial Clean Vehicles as a refundable credit. To be eligible for
the Credit for Qualified Commercial Clean Vehicles, the vehicle must not have been allowed a
credit under §§20D or 45W. The §45W Credit for Qualified Commercial Clean Vehicles is effective
for sales on or after January 1, 2023, and before January 1, 2033.

Unlike the §30D Clean Vehicle Credit, the Credit for Qualified Commercial Clean Vehicles does not
have the critical minerals requirement, battery component requirement, North American assembly
requirement, or MAGI or MSRP restrictions.

Whether a taxpayer can claim the qualified commercial clean vehicle credit in its business depends
on who is the owner of the vehicle for federal income tax purposes. If the vehicle is leased, the
owner of the vehicle is determined based on whether the lease is considered a lease or
recharacterized as a sale for federal income tax purposes.

Per IRS FAQs, a vehicle lease agreement would make a vehicle more likely to be recharacterized
as a sale for tax purposes if: 47
 The lease term covers more than 80% to 90% of the economic useful life of the vehicle;
 There is a bargain purchase option at the end of the lease or other terms/provisions that
would economically compel the lessee to acquire the vehicle at the end of the lease term;
or
 There are terms that result in the lessor transferring ownership risk to the lessee.
o Example: There is a terminal rental adjustment clause that requires the lessee to
pay the difference between the actual and expected value of the vehicle at the
end of the lease.

If the clean vehicle lease is recharacterized as a sale, the lessee would need to determine if they
are eligible to claim either a clean vehicle credit or a qualified commercial vehicle credit. The lessor
would not be eligible for either the clean vehicle credit or qualified commercial vehicle credit since
they engaged in a resale of the vehicle.

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Cost Recovery and Business Provisions

Luxury Automobile Limits Increased

Under §280F(a), limitations are placed on the amount of allowable Section 179 depreciation taken
on “passenger automobiles” placed in service and used for business purposes. The limitations for
tax years 2019, 2020, 2021, 2022, and 2023 are shown below. If the business usage is less than
100%, the business use percentage will be applied to the vehicle in question.

Subsequent
Depreciation limits for: 1st year 2nd year 3rd year
years
Passenger automobiles – 2019
(other than trucks/vans) $10,100 $16,100 $9,700 $5,760
Not using bonus depreciation
Passenger automobiles – 2019
(other than trucks/vans) $18,100 $16,100 $9,700 $5,760
100% bonus depreciation

2nd Subsequent
Depreciation limits for: 1st year 3rd year
year years
Passenger automobiles – 2020
(other than trucks/vans) $10,100 $16,100 $9,700 $5,760
Not using bonus depreciation
Passenger automobiles – 2020
(other than trucks/vans) $18,100 $16,100 $9,700 $5,760
100% bonus depreciation

Subsequent
Depreciation limits for: 1st year 2nd year 3rd year
years
Passenger automobiles – 2021
(other than trucks/vans) $10,200 $16,400 $9,800 $5,860
Not using bonus depreciation
Passenger automobiles – 2021
(other than trucks/vans) $18,200 $16,400 $9,800 $5,860
100% bonus depreciation

Subsequent
Depreciation limits for: 1st year 2nd year 3rd year
years
Passenger automobiles – 2022
(other than trucks/vans) $11,200 $18,000 $10,800 $6,460
Not using bonus depreciation
Passenger automobiles – 2022
(other than trucks/vans) $19,200 $18,000 $10,800 $6,460
100% bonus depreciation

Copyright © 2023, The Income Tax School, Inc. – All Rights Reserved Page 15.33
 Subsequent
Depreciation limits for: 1st year 2nd year 3rd year
years
Passenger automobiles – 2023
(other than trucks/vans) $12,200 $19,500 $11,700 $6,960
Not using bonus depreciation
Passenger automobiles – 2023
(other than trucks/vans) $20,200 $19,500 $11,700 $6,960
100% bonus depreciation

Subsequent
Depreciation limits for: 1st year 2nd year 3rd year
years
Passenger automobiles – 2024
(other than trucks/vans) Not Not Not
Not available
Not using bonus depreciation available available available
Passenger automobiles – 2024
(other than trucks/vans) Not Not Not
Not available
100% bonus depreciation available available available

The tax year 2024 depreciation limits for passenger automobiles have not been released at the
time this update was released. Once the limits have been released, we will provide an update
addendum with the tax year 2024 limits.

Section 179 Expensing Limit Increased

The §179 deduction is available for most new and used capital equipment, vehicles, and includes
certain software used in a trade or business or held for the production of income. The modified
accelerated cost recovery system (MACRS) is generally used to depreciate tangible property
unless the taxpayer elects to expense the item under §179. The amount expensed under §179
cannot exceed the trade or business taxable income for the tax year. Section 179 amounts
exceeding the taxable income limit may be carried forward to a succeeding tax year; however,
limitations may apply.

Limits for years after 2018 are adjusted for inflation. The limits for tax years 2023 and 2024 are
shown below:

§179 Expense Deduction 2023 2024

Maximum deduction overall:
 increased by $100,000 for qualified disaster
assistance property, OR $1,160,000 $1,220,000
 $35,000 for qualified enterprise zone property
Only one increase would apply.
Phaseout begins when §179 property exceeds $2,890,000 $3,050,000
Maximum deduction for an SUV with gross vehicle weight
$28,900 $30,500
rating over 6,000 pounds but not more than 14,000 pounds

MFS taxpayers combine purchases as if they were one taxpayer to calculate the dollar limit,
including the reduction for purchases over $2,890,000 for tax year 2023, and $3,050,000 for tax
year 2024. The resulting dollar limit is then allocated between each spouse equally, unless a
different allocation is elected (e.g., 60/40).

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Other Business Provisions

Business Mileage
As indicated in a prior section, the IRS normally updates the mileage rates once a year in the fall
for the next calendar year. In 2023, the standard mileage rate increases to 65.5 cents per mile for
business use.

Qualified Small Employer Health Reimbursement Arrangement

(QSEHRA)
For tax year 2024, the maximum amount of payments and reimbursements for the year must be
no greater than $6,150 ($12,450 for family coverage). This is an increase from $5,850 ($11,800 for
family coverage) for 2023.

Form 1099-K Reporting

Through December 31, 2021, a two-step de minimis standard existed, in which Third Party
Settlement Organizations were required to report third party network transactions of a participating
payee on Form 1099-K if:
 The amount that would otherwise be reported exceeded $20,000; and
 There were over 200 transactions.

A Third-Party Settlement Organization is a central organization that has the contractual obligation
to make payments to participating payees (generally, a merchant or business) of third-party network
transactions. Per IRS FAQs, an example of a third-party settlement organization is an online
auction payment facilitator like an online marketplace, which operates as an intermediary between
buyer and seller by transferring funds from the buyer to the seller for the provision of goods or
services. 61

ARPA amended the two-step de minimis standard and instead created a single standard with a
single $600 reporting threshold. This change was to take effect for years beginning after December
31, 2021; however, on December 23, 2022, the IRS announced that calendar year 2022 would be
treated as a transition year. Not long after, on November 21, 2023, the IRS issued Notice 2023-74,
announcing that calendar year 2023 would also be treated as a transition year. As a result, third
party settlement organizations who issue Forms 1099-K must follow the $20,000/200 transaction
threshold for calendar years 2022 and 2023. Due to the large number of taxpayers affected by the
new reporting provisions under ARPA, the IRS plans to implement a threshold of $5,000 for tax
year 2024 as part of a phase in for the $600 reporting threshold.

It is important to note that although the IRS delayed the $600 reporting threshold requirement, the
legal requirement for reporting income has not changed, regardless of the reporting threshold for
providing a Form 1099-K. Taxpayers are responsible for accurately reporting all income, regardless
of whether Form 1099-K (or any other information return, such as Form 1099-MISC or Form 1099-
NEC) is received.

A reportable payment transaction is any payment card transaction and any third-party network
transaction. Transactions meeting the aggregate payment de minimis standard must be reported
to all payees who accept payment from a third-party settlement organization. The IRS released

61
FS-2023-06.

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FAQs in March 2023 (FS-2023-06) detailing a variety of scenarios subject to Form 1099-K
reporting. 62

The gain or loss on the sale of a personal item may be reported on Form 1099-K. FAQ #3 reminds
taxpayers that the gain on the sale of a personal item is taxable and must be reported on Form
8949, Sales and Other Dispositions of Capital Assets, and Schedule D, Capital Gains and Losses
(Form 1040).

Losses on the sale of personal items are not deductible. Taxpayers who receive Form 1099-K for
the sale of a personal item that resulted in a loss should report the sale on Form 1040, Schedule 1
as follows:
 Proceeds should be reported on Line 8z, using the description “Form 1099-K Personal
Item Sold at a Loss.”
 Costs, up to but not exceeding the proceeds amount reported on Form 1099-K, should be
reported on Line 24z, using the description “Form 1099-K Personal Item Sold at a Loss.”

Example: Robert broke up with his fiancé, Amy, and sold her engagement ring for a loss on
December 31, 2023. Robert received Form 1099-K, reporting proceeds of $1,500.
Robert originally purchased the ring for $5,000 on January 31, 2023. Robert’s loss
is reported as follows:

Alternately, taxpayers may report the sale of a personal item at a loss on Forms 8949 and Schedule
D. Taxpayers should enter “L” in column (f) of Form 8949 to explain that the loss is nondeductible.
Then, the amount of the nondeductible loss should be entered as a positive number in column (g).
Using the same facts in the example above, Robert would report his loss as follows on Form 8949:

62
FS-2023-06.

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If a taxpayer sells multiple items within a single online transaction, any gain and loss must be
reported separately.

Example: On November 5, 2023, Jen sold two sets of concert tickets (four tickets total) in a
single online transaction. She received total proceeds of $2,000: $1,200 for one
set of tickets and $800 for the second set of tickets. Jen purchased the tickets for
personal use on August 5, 2023. She paid $900 for the first set of tickets and
$1,000 for the second set of tickets.

Jen must report the gain and loss separately, as the loss on the second set of
concert tickets cannot offset the gain on the first set of tickets. Jen reports the $300
gain from the sale of one set of tickets ($1,200 sales price less $900 purchase
price) on Form 8949 and Schedule D. Jen reports the $200 loss from the sale of
the other set of tickets ($800 sales price less $1,000 purchase price) by entering
$800 (proceeds) on Schedule 1, Lines 8z and 24z.

Form 1099-K does not adjust the gross amount of payment card/third party network transactions
for any fees, refunds, chargebacks, or other costs. Taxpayers should include all fees, including any
processing or selling fees, associated with the sale of their personal items in their basis when
computing any gain or loss on the sale. Taxpayers should keep adequate records to substantiate
any adjustments made to basis.

If a taxpayer’s records are lost, destroyed, or not available due to circumstances beyond their
control, and the taxpayer’s return is audited, IRS examiners may allow the taxpayer to either
present reconstructed records or provide oral testimony.

If a taxpayer receives a reimbursement from another individual, the reimbursement is generally not
taxable, as the reimbursement is not payment for the sale of goods or services. If a taxpayer
believes that Form 1099-K was issued in error or that the information on Form 1099-K is incorrect,
they should contact the filer. If the taxpayer cannot get Form 1099-K corrected, IRS FAQ #8
specifies that the error should be reported on Form 1040, Schedule 1, Part I, Additional Income,
Line 8z, Other Income, with an offsetting entry in Part II, Adjustments to Income, Line 24z, Other
Adjustments.

Example: Danielle and Alexandra went on a luxurious cruise to the Bahamas. Danielle
purchased the tickets, which cost $3,000 each. Alexandra reimbursed Danielle
$3,000 for the cruise tickets, and Danielle received a Form 1099-K reporting the
$3,000 as gross proceeds. Danielle was unable to receive a corrected Form 1099-
K. As a result, Danielle reports the following on Form 1040, Schedule 1:

Copyright © 2023, The Income Tax School, Inc. – All Rights Reserved Page 15.37