The adoption of the Inflation Reduction Act (IRA) is generating a lot of excitement among electric vehicle enthusiasts; however, it is also raising many questions for businesses who were looking to expand their EV footprint. The IRA is a broad piece of legislation that delivers benefits to Americans in multiple areas: healthcare, wage protection for workers, incentives for American-made goods, credits for job creation in the sustainable energy sector, and of course, transportation electrification. These incentives include both rebates and tax credits. But what, exactly, are the benefits and who is eligible?
First, let’s clarify one thing—tax credits and incentives need to be discussed with your corporate tax professional to decide what is truly of benefit to your organization. There is no simple “one size fits all” for every corporate tax liability, and that maxim is certainly true here. This video is intended to get you started with the basics—you must follow up with your own tax research.
To start, the IRA reorganized the tax credits for electric vehicles, now called clean vehicles, into three separate tax credits. It modified the existing electric vehicle credit into a general clean vehicle tax credit, it created a previously owned clean vehicle tax credit and a commercial clean vehicle tax credit. Additionally, it extended benefits on the installation of charging stations. However, these new programs come with restrictive qualifications and eligibility requirements.
Here we explore what’s out there and give you the 411 on the IRA. We’ll provide you with an overview of the impact on electric vehicle purchase, refueling property credits, and commercial vehicles.
The purchase of Electric Vehicles (EV)
You may have heard through the media about the revised tax credits for both new and used EV purchases. These credits are largely consumer provisions and we do not believe these will have an impact on leased fleets. Even if eligible to fleets, strict manufacturing criteria exist for a vehicle to qualify, significantly limiting the number of vehicles eligible for the credit. To meet the criteria, EVs must have final assembly in North America and be placed into service after December 31st of this year.
The good news is that the 200,000-vehicle cap per manufacturer has been lifted. Previously, federal tax credits were capped at 200,000 vehicles per manufacturer – a total number, not an annual one. At that point the incentives were incrementally reduced and eventually eliminated for buyers of that manufacturer. For instance, Tesla and Chevrolet quickly reached this threshold, with other manufacturers close behind them. For more information on the new regulations, the IRS has an informative FAQ document at this location to address any specific tax questions that you may have. And, as mentioned before, you should always discuss your specific situation with your tax professional.
The Alternative Fuel Refueling Property Credit – Section 30C, will be potentially important to you.
Before this bill, there was an IRS tax credit for installation of charging stations for both businesses and residences. This credit equaled 30% of the cost of installing chargers—capped at $30,000 per location. Intended to incentivize the building of EV infrastructure, that credit expired the end of 2021.
IRA section 30C extends and improves upon that expired tax credit provision. The new law increases the maximum credit from $30,000 to $100,000 per location. In addition, it extends the timeframe to take advantage of the credit to 2032. This IRS credit is available retroactively to the beginning of 2022, closing the time gap for installation credits left by the expired bill. There are some qualifying details. For instance, the property must be in a “qualified census tract”. This includes areas impacted by pollution, low income or lack of charging infrastructure.
A bonus credit is available if wage and apprenticeship requirements are met. For depreciable property, the base credit is six percent. By meeting the wage and apprenticeship requirements, the credit increases to 30 percent. Of course, your tax advisor can tell you if you qualify.
Section 45W addresses a new credit for Qualified Commercial Clean Vehicles
While one of the lesser-known sections, this credit will have a large impact on service and heavy-duty fleets. The provisions could potentially make owning an EV truck cheaper than owning a diesel. For hybrid vehicles, the credit is up to 15 percent of the difference between the cost of a hybrid versus a comparable ICE vehicle. For vehicles not powered by gasoline or diesel, the credit is 30 percent of the excess amount.
The credit amounts are capped and come with many complicated calculations and requirements. The maximum credit is $7,500 for vehicles with a gross weight rating of less than 14,000 pounds and $40,000 for all others. In addition, the credit may not exceed the lesser of 30% of the purchase price or the incremental cost of the vehicle over a comparable internal combustion engine.
Additionally, there are minimum battery efficiency requirements. Limitations may apply based on usage and credits will continue to be available to the owner of the vehicle.
These incentives, along with any potential state incentives, are meant to close the gap between the cost of a new EV, versus an ICE vehicle. The credit will apply to any vehicles placed in service after Dec. 31, 2022, through the year 2032.
We know this synopsis is just a start. There is much more detail behind this overview and your specific situation. We will be unpacking it further for you as we have more clarification. We would love to discuss how Wheels-Donlen can support your goals around the fleet electrification. Feel free to contact us to discuss the options available to maximize the benefits of these incentives—based on the advice of your tax professional.