IRS Proposes Tax Credits for Business Electric Vehicle Purchases
Published Date: 1/14/2025
Proposed Rule
Summary
The IRS is proposing new rules to give tax credits for businesses that buy clean commercial vehicles, like electric trucks or vans. This helps companies save money when they put these eco-friendly vehicles to work. Comments on the plan are open until March 17, 2025, with a public hearing set for April 28, 2025.
Analyzed Economic Effects
9 provisions identified: 4 benefits, 2 costs, 3 mixed.
Credit Amount, Percentage, and Caps
If you place a qualified commercial clean vehicle in service, the credit for that vehicle is the lesser of: (A) 15% of your basis in the vehicle (or 30% if the vehicle is not powered by a gasoline or diesel internal combustion engine), or (B) the vehicle's incremental cost. The credit for any vehicle cannot exceed $7,500 if its GVWR is less than 14,000 pounds, or $40,000 for any other vehicle.
Incremental Cost Calculation Formula
The proposed rule defines incremental cost using a powertrain-based formula: (manufacturer's cost of the clean vehicle powertrain × the vehicle's retail price equivalent) minus (manufacturer's cost of the comparable ICE powertrain × that vehicle's retail price equivalent). The rule also provides powertrain-specific equations (BEV, FCEV, PHEV, PHFCEV) and requires use of manufacturer's component costs and RPEs.
Battery Capacity and Propulsion Requirements
A qualified commercial clean vehicle must be propelled to a significant extent by an electric motor drawing electricity from a battery that is rechargeable from an external source and that has at least 15 kilowatt-hours of capacity (or at least 7 kilowatt-hours if the vehicle's GVWR is under 14,000 pounds).
Manufacturer Reporting and Qualified Status Rules
A vehicle must be made by a 'qualified manufacturer' that enters into a written agreement and provides periodic written reports (including VINs and certifications) to the IRS; if a manufacturer fails to provide accurate, timely reports or updates, the vehicle may not meet section 45W requirements and the vehicle can be ineligible for the credit. The IRS may terminate qualified manufacturer status for fraud, intentional disregard, or gross negligence.
Negative or No Comparable Vehicle Means No Credit (Safe Harbor Available)
If an incremental cost calculation yields a negative number or if no comparable ICE vehicle exists, the incremental cost is treated as zero and no credit results under the general rule; however, taxpayers may rely on safe harbors (including RPE safe harbors) provided by the IRS to calculate incremental cost and claim the credit.
Tax-Exempt Entities and Section 6417 Election
Section 6417 allows applicable entities, and section 6417(b)(6) treats the section 45W credit as an 'applicable credit' for certain tax-exempt entities described in section 168(h)(2)(A)(i), (ii), and (iv), enabling those entities to make an election to be treated as making a payment against income tax equal to the credit amount.
VIN Must Be Reported on Tax Return
You cannot claim the section 45W credit for a vehicle unless you include that vehicle's Vehicle Identification Number (VIN) on your tax return for the year the vehicle is placed in service.
Auxiliary Power Units Excluded from Incremental Cost
When calculating incremental cost, the manufacturer's cost of auxiliary power units (APUs) installed on both the clean vehicle and the comparable ICE vehicle is disregarded (APU costs are excluded from the incremental cost calculation).
Placed-in-Service Date Is Date of Possession
For section 45W, a vehicle is considered 'placed in service' on the date the taxpayer takes possession of the vehicle, which determines the taxable year when the credit may be claimed.
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Key Dates
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