New Guidance on the Commercial EV Tax Credit
In one of their final sets of guidance under President Biden, the Department of Treasury and the IRS released proposed regulations for the tax credit under Section 45W, which is available for purchasing electric vehicles for commercial use.
Enacted as part of the Inflation Reduction Act of 2022, Section 45W of the Internal Revenue Code allows businesses to claim a tax credit for purchasing qualified commercial clean vehicles, including electric, hydrogen, and certain hybrid cars and trucks. Generally, the credit is equal to 30% of the purchase price (15% for hybrid vehicles), not to exceed the incremental cost compared to comparable gas- or diesel-powered vehicles. The maximum credit is $7,500 for vehicles with a gross vehicle weight rating ("GVWR") of less than 14,000 pounds and $40,000 for vehicles with a GVWR of 14,000 pounds or more.
Businesses may claim the credit for acquiring vehicles for use or lease. Unlike the credit under Section 30D that may be claimed by retail purchasers, the Section 45W credit does not require manufacturers to meet sourcing rules.
The proposed regulations, which were published in the Federal Register on January 14, aim to provide guidance to allow taxpayers to determine eligibility for the credit and ensure taxpayers' compliance with such eligibility criteria. Key points include:
- Providing rules for calculating the "incremental cost" of a clean vehicle and determining a "comparable" gas or diesel vehicle;
- Permitting taxpayers to rely on incremental cost determinations by a qualified manufacturer or on the safe harbor notices from the IRS;
- Providing rules for determining the "incremental cost" of used vehicles;
- Clarifying the "no double benefit" rule, such that no credit is allowed with respect to a vehicle for which a credit was previously claimed under Section 30D or Section 45W;
- Reserving on the eligibility criteria for off-road vehicles (e.g., "mobile machinery"); and
- Specifying relevant reporting requirements.
Treasury and the IRS have requested public comments with respect to the proposed regulations, which must be received by March 17, 2025. Taxpayers should note that while the proposed regulations provide guidance so long as Section 45W remains in effect, Section 45W is a potential target for repeal by Congress.
