The $40,000 Electric Vehicle Business Tax Credit Could Be Easy

Additionally, the heavy truck tax credit is worth up to $40,000, as opposed to up to $7,500 for passenger cars and light commercial electrics.

Ingrid Malmgren, policy director at Plug In America, said of the commercial EV tax credit, “I think it’s much easier and more accessible than the light car tax credit.” This is a great opportunity to reduce emissions in a highly effective way.”

Business owners are eligible for the tax credit for new vehicles purchased after January 1, 2023. It can be used for 10 years until the end of 2032.

Here are the basics of commercial vehicle credit.

Tax incentives are available to business owners who purchase electric vehicles or electric “mobile machinery”, including construction, manufacturing, processing, farming, mining, excavating, or lumbering.

Vehicles must be eligible for depreciation, according to the Congressional Research Service. That is, for business use.

“For example, if you own a flower shop and want to get a flower delivery van, you will claim a tax credit if you buy a lot of vans,” says Malmgren.

There are two criteria for the commercial tax exemption. Anything heavier than that is eligible for up to $40,000.

The £14,000 threshold includes class 4 and above commercial vehicles or primarily medium and heavy duty trucks and buses.

According to a 2019 U.S. Department of Energy report, medium and heavy duty trucks are “the fastest growing fuel consumer and greenhouse gas generator in the United States.”

Class 3 to Class 8 trucks make up less than 5% of the total number of vehicles on US roads, but account for 27% of annual on-road fuel use, according to the report. Gasoline and diesel account for more than 90% of the fuel usage of medium and heavy duty vehicles.

The market for electrified commercial vehicles is “long behind” the market for light vehicles, but battery performance has improved over the past decade and battery costs have fallen significantly, driving medium and heavy-duty trucks and buses into the market. Electrification is “becoming more attractive,” according to a Department of Energy report.

Technically, the commercial vehicle tax credit is worth the lower of: (1) 30% of the vehicle purchase price; or (2) “incremental cost” compared to similar gasoline vehicles. (The incremental cost is the price difference between a commercial clean vehicle and a similar vehicle with an internal combustion engine.)

Whatever the amount from this calculation, the final value is capped at $7,500 or $40,000, as stated above.

Some aspects of the tax cuts remain unclear until the U.S. Treasury Department and IRS issue guidance on the new rules, experts say. For example, how would a business owner determine the price of an equivalent gasoline car in order to do an “incremental cost” analysis?

Financial gains are structured as tax deductions, so the business owner must pay tax to earn the benefits. KPMG director Steven Schmoll said tax-exempt entities can still get economic benefits in the form of direct checks from the government.

In addition, business owners cannot double up by obtaining tax relief on the consumer side (tax code section 30D) and commercial side (code section 45W).

One of the main differences between the commercial tax credit and the consumer tax credit for new clean vehicles is the absence of manufacturing and other requirements for the commercial credit.

To qualify for a “new clean vehicle” credit (i.e. not for business owners), the final assembly of the vehicle must be in North America. The Energy Department has a list of vehicles that meet this standard.

Some additional regulations will come into force in 2023.

First, there is an income limit. A single person whose adjusted gross income is more than her $150,000 is not eligible for the tax credit. The cap is higher elsewhere, at $225,000 for her if she’s the head of the household and $300,000 for her if she’s filing a joint tax return. (This test applies to your income for the current year or the previous year, whichever is lower.)

Also, certain vehicles may not be eligible based on price. Excludes sedans retailing over $55,000 and vans, SUVs, and trucks retailing over $80,000.

Two other rules apply to manufacturing. Second, some of the battery components must be manufactured and assembled in North America. If any of these requirements are not met, the consumer will lose half of the tax credit (up to $3,750). If they can’t meet both, they’ll lose all of her $7,500.

The five requirements were added by the Inflation Reduction Act, and none apply to commercial clean vehicle credits, Schmoll said.