Electric Vehicle Tax & IRC 45W Commercial Credits: A Comprehensive Guide for Businesses

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Elizabeth Pandolfi

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February 2, 2024

This article is Tax Professional approved

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Plenty of small business owners are looking for ways to embrace more sustainable operations—and if they can lower their tax bill at the same time, that’s a win-win.

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That’s exactly what the recently passed commercial clean vehicle tax credit is designed to do: businesses that purchased an eligible fully electric (EV), plug-in hybrid (PHEV), or fuel cell vehicle for business use (even partial business use) in 2023 can qualify for up to $7,500 in tax credits, or up to $40,000 in tax credits for larger vehicles like vans, trucks, and buses. 

Of course, like most tax regulations, the rule is not quite as simple as it sounds. This guide will take you through the eligibility requirements and how to calculate your credit.

What is the Commercial Clean Vehicle Tax Credit?

The Commercial Clean Vehicle Credit is a federal tax credit that rewards businesses for investing in electric and hybrid vehicles. 

As a reminder, tax credits directly reduce the amount of federal income tax owed by the business. Tax deductions, on the other hand, reduce your taxable income. 

Taxpayers who purchase one of the eligible models, whether new or used, for business use can receive a credit of up to $7,500 for most vehicles, and up to $40,000 for larger vehicles on their federal tax return. 

Step-by-step guide to qualifying for the Commercial Clean Vehicle Credit:

1. Research eligible vehicles: Consult FuelEconomy.gov to see a list of eligible vehicles purchased in 2023 or after. There is also a list of eligible vehicles purchased in 2022 or before.  

2. Keep detailed records: A form for the credit is not available yet, but you will need your vehicle’s VIN, and specifications from the dealership or seller you purchased the vehicle from in order to qualify. Keep documentation of the sales transaction, your title, and any other relevant paperwork from the seller, as well. 

4. Explore additional state electric vehicle tax credits: Some states and local governments may offer additional green vehicle incentives or rebates, so it’s a good idea to consult with a tax advisor to make sure you’re taking advantage of any that apply to you. 

Which vehicles are eligible for the Commercial Clean Vehicle Tax Credit?

There are certain qualifications that a vehicle must meet in order to be eligible for the tax credit. The qualifications have to do with how much of the assembly and manufacture of the car was in the U.S., specifically the battery and critical mineral components. 

An updated list of eligible vehicles is always available at the website FuelEconomy.gov, and the IRS is recommending that taxpayers check the website before filing (or before making a new EV purchase, if they want to get the tax credit). 

As of January 2024, the following vehicles are listed on the FuelEconomy.gov website as eligible for the commercial clean vehicle tax credit: 

  • Chevrolet Bolt
  • Ford Escape Plug-in Hybrid
  • Ford F-150 Lightning
  • Jeep Grand Cherokee
  • Jeep Wrangler PHEV
  • Rivian R1S Dual and Quad models
  • Tesla Model 3
  • Tesla Model X
  • Tesla Model Y All-Wheel, Performance, and Rear Wheel Drive
  • Volkswagen ID.4

Both businesses and tax-exempt organizations qualify for the commercial clean vehicle credit, provided that the car is being used for business purposes. 

How to Get the IRS EV Credit for a Personal Vehicle

There is also an electric vehicle tax credit for taxpayers who purchase eligible vehicles for personal use. Taxpayers who buy both business and personal EVs in a tax year can only take one credit, either the Commercial Clean Vehicle Credit or the New Clean Vehicle Credit. 

If taxpayers want to take the New Clean Vehicle Credit for a car they’re using for personal use, in addition to the manufacturing requirements the eligibility criteria also include: 

  • A price cap: Vans, SUVs, and pickup truck models must have an MSRP of $80,000 or less. Sedans and other passenger cars are capped at $55,000, while used EVs have a cap of $25,000.
  • Income limits: Taxpayers also have to meet income requirements in order to qualify.

For those buying new or used vehicles, the income caps are: 

  • Married filing jointly: less than $300,000 new  / $150,000
  • Single: $150,000 / $75,000
  • Head of household: $225,000 / $112,500
  • Married filing separately: $150,000 / $75,000

The vehicle must be used primarily in the United States and meet certain emission standards in order to be eligible for the IRS EV tax credit. 

How much is the Commercial Clean Vehicle Tax Credit?

The amount of the credit is the lesser of either: 

  1. 15% of the taxpayer’s tax basis in the vehicle (30% for a fully electric vehicle).
  2. The incremental cost of the vehicle, which is the additional cost of a clean vehicle over the cost of a comparable vehicle.  

The credit amount caps out at $7,500 per vehicle for vehicles with a gross vehicle weight rating of less than 14,000 pounds. For vehicles above that weight rating, the credit caps at $40,000 per vehicle. However, there is no limit to the number of tax credits you can receive, although they are nonrefundable—this means you can’t receive more in credits than you owe in taxes. 

So it’s a good idea for businesses considering an upgrade to their fleet to check the list of eligible vehicles, and consider models that will fit the credit criteria. 

Lower your tax bill by taking a step toward sustainability

The Commercial Clean Vehicle Credit offers small businesses a great opportunity to reap financial rewards while taking concrete action toward becoming more sustainable. And as customers come to demand more environmentally responsible behavior from the businesses they support, taking advantage of chances like this one will only become more important.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.
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