Can Non-resident Alien Claim Tesla Credit on Form 1040NR?

[workhard2022]

I have a client who is a Non-resident alien (NRA). he bought a Tesla in 2023 and asked me if he could claim the $7500 Tesla credit on his tax return (Form 1040NR). I researched on Google but I can't find any clear statement/regulations about whether NRA qualified for claiming that $7500 Tesla credit or not. Can anyone please help me confirm it? Thank you and have a great day!

[Terry53029]

I would think no, because to claim credit you must use it primarily in the U.S.

[BobKamman]

Lots of nonresident aliens live in the US.  Legally.  Someone pointed out, 

"The form to claiming this credit for vehicles put in service in 2023 and later, Form 8936, and its instructions, refer to 1040-NR, so it seems that it can be filed by nonresident aliens."

https://money.stackexchange.com/questions/160689/can-i-get-the-electric-vehicles-federal-income-tax-... 

[workhard2022]

This person lives in the US for the entire 2023. he is a non-resident alien just because he is under a student visa (F1/OPT) and he does use the Tesla in America all the time.

[workhard2022]

Thank you BobKamman for your help. it is helpful. I just hope to find some IRS or other real government statements on NRA claim Tesla credit on form 1040NR. 

[itonewbie · Accepted solution]

TLDR: The credit is allowed on F.1040-NR but only to reduce income tax assessed on US-ECI.

Tax-speak:

According to 30D(c)(2), the Clean Vehicle Credit is a personal credit that is "allowable under subpart A".  Here, subpart A refers to Nonrefundable Personal Credits (§§ 21 – 26). 

30D(c)(2) Personal Credit

For purposes of this title, the credit allowed under subsection (a) for any taxable year (determined after application of paragraph (1)) shall be treated as a credit allowable under subpart A for such taxable year.

Just as the code points to subpart A, Prop. Reg. §1.30D-1(b)(3), more precisely, points to §26 of subpart A for how the credit will be limited.

1.30D-1(b)(3) Personal credit limited based on tax liability

Section 26 of the Code limits the aggregate amount of credits allowed to a taxpayer by subpart A of part IV of subchapter A of chapter 1 (subpart A) based on the taxpayer's tax liability. Under section 26(a), the aggregate amount of credits allowed to a taxpayer by subpart A cannot exceed the sum of the taxpayer's regular tax liability (as defined in section 26(b)) for the taxable year reduced by the foreign tax credit allowable under section 27 of the Code, and the alternative minimum tax imposed by section 55(a) for the taxable year. Section 30D(c)(2) provides that the section 30D credit allowed under section 30D(a) for any taxable year (determined after application of section 30D(c)(1) and paragraphs (b)(1) and (2) of this section) is treated as a credit allowable under subpart A for such taxable year, and the section 30D credit allowed under section 30D(a) is therefore subject to the limitation imposed by section 26.

With that, we turn to §26(a) and we'll see that aggregate amount of credits allowed under subpart A cannot exceed the sum of the taxpayer's "regular tax liability" reduced by FTC plus AMT.  Subsection (b) then goes on to define "regular tax liability" as tax imposed by chapter 1 (for normal taxes and surtaxes) but specifically excludes a number of taxes imposed under various code sections as outlined in paragraph (2), among which is taxes assessable to NRA's under §871(a).

26 U.S. Code § 26 - Limitation based on tax liability; definition of tax liability

(a) Limitation based on amount of tax
The aggregate amount of credits allowed by this subpart for the taxable year shall not exceed the sum of—
(1) the taxpayer’s regular tax liability for the taxable year reduced by the foreign tax credit allowable under section 27, and
(2) the tax imposed by section 55(a) for the taxable year.

(b) Regular tax liability
For purposes of this part—
(1) In general
The term “regular tax liability” means the tax imposed by this chapter for the taxable year.
(2) Exception for certain taxesFor purposes of paragraph (1), any tax imposed by any of the following provisions shall not be treated as tax imposed by this chapter:
(A)...
(L) sections 871(a) and 881 (relating to certain income of nonresident aliens and foreign corporations),

This exclusion is significant because NRA's are subject to US tax under two regimes.  §871 dictates that FDAP is taxable at a flat 30% under subsection (a) while US-ECI is taxable at graduated rates under §§1 and 55, pursuant to subsection (b).  This essentially means that taxes imposed on FDAP will not qualify for the Clean Vehicle Credit but taxes on US-ECI will.

26 U.S. Code § 871 - Tax on nonresident alien individuals

(a) Income not connected with United States business—30 percent tax...

(b) Income connected with United States business—graduated rate of tax
(1) Imposition of tax
A nonresident alien individual engaged in trade or business within the United States during the taxable year shall be taxable as provided in section 1 or 55 on his taxable income which is effectively connected with the conduct of a trade or business within the United States.
(2) Determination of taxable income
In determining taxable income for purposes of paragraph (1), gross income includes only gross income which is effectively connected with the conduct of a trade or business within the United States.

This is consistent with how Part III of F.8936 is structured.  Line 10 of the form refers to F.1040-NR, Line 18.  Why not F.1040-NR Line 23a for taxes from Schedule NEC also?  Well, that's because taxes on FDAP from Schedule NEC are specifically excluded under §26(b)(2)(L).

So, there you have it.