IRS offers helpful guidance for EV charging credit

The IRS released favorable guidance under Section 30C on Sept. 18 that will allow taxpayers installing electric vehicle chargers and other alternative fuel refueling property to apply separate credit limitations to many different items of property at a single location. The guidance includes proposed regulations (REG-118269-23) with substantive rules on the credit and a new notice (Notice 2024-64) that clarifies prior guidance (Notice 2024-20) on qualifying geographies.

The Inflation Reduction Act amended the 30% credit under Section 30C to increase the cap from $30,000 per location to $100,000 per item of property, but added new restrictions. Taxpayers must generally meet prevailing wage and apprenticeship requirements during construction of the property, and the credits are only available for property placed in service in specific census tracts.

The shift from a credit limitation based on “location” to one based on “item of property” significantly increased the total amount of credit taxpayers can claim at a single location, but the statutory language offered no guidance on how to define a “single” item of property. The proposed regulations allow taxpayers to apply the limitation to each charging port, fuel dispenser or storage property. The guidance also allows taxpayers to include many types of associated property in the credit base and allocate their costs across multiple items for purposes of the single-item limitation.

General rules

Section 30C was amended significantly for property placed in service after 2022. The credit is available for installing alternative fuel refueling property, which includes EV chargers and property for refueling vehicles with ethanol, natural gas, compressed natural gas, liquefied natural gas, liquified petroleum gas, hydrogen, biodiesel (at least 20%), or any fuel produced after 2024 that qualifies for a credit under Section 45Z.

There are essentially two versions of the credit, one for property subject to depreciation (generally business use property) and another for property not subject to depreciation (individual or personal use). The credit rate for personal use is 30% without any prevailing wage and apprenticeship requirements, but it is capped at $1,000 per single item of property and the property must be installed at the principal residence of the individual. If property installed at a principal resident is used in a business, taxpayers can apportion the credit between the uses unless the business usage is over 50%, which will be considered business use.

If the property is subject to depreciation, the rate is 30% if the prevailing wage and apprenticeship rules are met (or construction began before Jan. 29, 2023), and 6% if they are not. The limitation is $100,000 per single item of property, and the depreciable basis must be reduced by the amount of the credit. Property installed by tax-exempt entities is deemed to be of a character subject to depreciation. 

In order to qualify, the property must be placed in service in census tracts that qualify as low-income communities for the new markets tax credits (NMTC) or census tracts designated as non-urban by the Census Bureau.

The statute provides for recapture rules similar to existing provisions, and the proposed regulations would require credit recapture if within three years, the property:

• Is modified to so that it no longer qualifies
• Ceases to be used in a trade or business

Is sold or disposed of (including in a casualty loss) and the property will no longer qualify under 30C

Monetization and utilization

For businesses, the credit is generally claimed as a general business credit, but it can also be sold and transferred to an unrelated taxpayer for cash under the new credit transfer rules under Section 6418 (see our prior story for more information).

Certain tax-exempt entities can claim the credit as a refundable payment under Section 6417 (see our prior story for more information). The statute also provides for taxpayers installing the property for certain tax-exempt entities to claim the credit themselves as long as they notify the tax-exempt entity of the credit amount, typically in exchange for a price reduction.  

Qualifying property and limit

The credit is available for property used for dispensing a clean-burning fuel or charging electricity, but only if the fuel or charge is delivered directly into the vehicle. Energy storage property can also qualify, but only if it is located at the point where the vehicle is fueled or recharged. Qualified property does not include a building or its structural components.

The proposed regulations use similar definitions for the scope of qualifying property as other credits such as Section 48 and 48E. Qualifying property includes all components that are “functionally interdependent” and any property that represents an “integral part.” Components are functionally interdependent when each component is dependent on the others to refuel or recharge the vehicle. Property is an “integral part” if it is used directly in the intended function and essential for the completeness of the intended function. Examples in the regulations provide that items such as pedestals to support chargers, electrical conduit and wiring, and a smart charge management system could qualify. Conversely, an example discusses how land, permitting fees, signs and striping would not qualify.

For purposes of the credit limitation, the proposed regulations define a single item of property as each charging port, fuel dispenser or storage property. Each port on an EV charging station capable of charging a separate vehicle is eligible for a separate limitation, as long as the ports can provide simultaneous charging at the rated electrical output. Taxpayers installing charging towers with multiple ports can allocate the cost of the tower among the separate ports.

Associated property such as conduit and wiring or a smart charge management system is allocated to the property to which it is directly attributable and traceable. If it is directly attributable and traceable to multiple properties, the cost is allocated across the items based on the cost of each.

Dual-use property is only creditable to extent its cost exceeds the cost of equivalent property with only a non-creditable use. Dual-use property could include pumps or tanks that dispense or hold both alternative and conventional fuel, or property used to store and transmit electricity for other things besides vehicles.

Qualifying geographies

The credit is only available for property placed in service in census tracts that qualify as low-income communities for the new markets tax credits or census tracts designated as non-urban by the Census Bureau. These definitions present challenges because the Census Bureau does not currently identify urban areas by tract, focusing on smaller unit census blocks, and the definition of NMTC includes targeted populations, areas not within census tracts and low-population census tracts.

Notice 2024-20 provided transitional guidance that allows taxpayers to rely on an expansive definition of qualifying census tracts. For property placed in service before 2025, taxpayers can use either the 2011-2015 NMTC tracts with the 2015 census tract boundaries (Appendix A) or the 2016-2020 NMTC tracts and 2020 non-urban census tracts, both with the 2020 census tract boundaries (Appendix B). A Department of Energy mapping tool is also available.

Notice 2024-64 acknowledged technical issues related to the mapping tool that “in rare circumstances may provide inaccurate results.” Taxpayers can instead choose to use the 11-digit census tract GEOID from the above appendixes against census tract map boundaries for 2015 and 2020.

Like the notices, the proposed regulations conclude that the IRS cannot include NMTC communities in areas not within a census tract, but request comments on potentially adding targeted populations and low-population tracts under the NMTC community definition. The proposed regulations also request comments on whether and how mobile property could qualify.