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Credit For Qualified Commercial Clean Vehicles

The Inflation Reduction Act of 2022 adds a Code Sec. 38 general business credit for qualified vehicles acquired and placed in service after December 31, 2022, and before 2033. (Sec. 45W(a), Act Sec. 13403(a) and (c))

Credit Amount - The per vehicle credit is the lesser of:

  • 15% of the vehicle's basis (30% for vehicles not powered by a gasoline or diesel engine) or
  • The "incremental cost" of the vehicle over the cost of a comparable vehicle powered solely by a gasoline or diesel engine.
    • The incremental cost of any qualified commercial clean vehicle is an amount equal to the excess of the purchase price for such vehicle over such price of a comparable vehicle.
    • A comparable vehicle means, with respect to any qualified commercial clean vehicle, any vehicle which is powered solely by a gasoline or diesel internal combustion engine, and which is comparable in size and use to such vehicle.
    • The Secretary shall issue such regulations or other guidance as the Secretary determines necessary to carry out the purposes of this section, including regulations or other guidance relating to determination of the incremental cost of any qualified commercial clean vehicle. This could cause a delay in the application of the credit in 2023.

Maximum Credit - The maximum credit (Sec 45W(b), Act Sec. 13403(a)) per vehicle is:

  • $7,500 for vehicles with gross vehicle weight ratings of less than 14,000 pounds, or
  • $40,000 for heavier vehicles.

No Double Dipping - No deduction is allowed under this section if credit for the vehicle is claimed under the Sec 30D clean vehicle credit.

Qualified Commercial Clean Vehicle - (Sec. 45W(c), Act Sec. 13403(a)) is a vehicle:

  • Acquired for use or lease by the taxpayer, and not for resale. (This doesn’t mean that a taxpayer leasing an otherwise qualified vehicle would be able to claim the credit – the language doesn’t say “acquired by lease”. The taxpayer must purchase the vehicle to claim the credit.)
    • Manufactured for use on public streets, roads, and highways, or
    • Mobile machinery as defined in Code Sec. 4053(8). See the definition of mobile machinery below.
  • With a battery capacity of not less than 15 kilowatt hours (7 kilowatt hours for vehicles weighing less than 14,000 pounds) and
  • Charged by an external electricity source.
  • Qualified commercial fuel cell vehicles are also eligible for the credit.
  • Must be depreciable property.
  • Must be made by qualified manufacturers that have written agreements with, and provide periodic reports to, the Treasury. (Sec. 45W(c), Act Sec. 13403(a))

Other Issues  

  • Special rules apply to vehicles placed in service by tax-exempt entities.
  • A vehicle identification number (VIN) is required on returns claiming the credit.
  • Basis must be reduced by the amount of the credit.
  • Property used outside of the U.S. is not qualified
  • Credit recapture rules shall be specified by IRS regulations
  • Vehicle will not be qualified for the credit unless in compliance with the Clean Air Act.
  • Taxpayer may elect not to claim the credit, in which case basis is not adjusted.

Mobile Machinery (Sec 4053(8) - Any vehicle which consists of a chassis:

  • To which there has been permanently mounted (by welding, bolting, riveting, or other means) machinery or equipment to perform a construction, manufacturing, processing, farming, mining, drilling, timbering, or similar operation if the operation of the machinery or equipment is unrelated to transportation on or off the public highways,
  • Which has been specially designed to serve only as a mobile carriage and mount (and a power source, where applicable) for the particular machinery or equipment involved, whether or not such machinery or equipment is in operation, and
  • Which, by reason of such special design, could not, without substantial structural modification, be used as a component of a vehicle designed to perform a function of transporting any load other than that particular machinery or equipment or similar machinery or equipment requiring such a specially designed chassis.

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