The IRS has released a string guidance (Notice 2023-1, Notice 2023-9, a White Paper, and FAQs) providing key details on the clean vehicle tax incentives enacted and amended under the Inflation Reduction Act of 2022. The guidance provides useful preliminary information on the Section 30D clean vehicle credit for consumers, while there are still many unanswered questions on the Section 45W qualified clean commercial vehicle credit.
The Section 30D clean vehicle generally offers consumers a credit of up to $7,500 if mineral and battery sourcing requirements are met and the vehicle undergoes final assembly in North America. The vehicles also must meet cost requirements based on manufacturer suggested retail prices, and there are income limitations for taxpayers claiming the credit.
Notice 2023-1 provides that the critical minerals and battery component requirements will not take effect until the IRS issues guidance, which the IRS has said will come in March. The IRS has posted on its website a list of vehicles that will qualify, but taxpayers should verify specific vehicles underwent final assembly in North America by inputting their vehicle identification numbers on a Department of Energy website, using the “VIN Decoder tool” under "Specific Assembly Location Based on VIN.”
Section 45W qualified clean commercial vehicle credit
The Section 45W credit is generally 30% of the basis but is reduced to 15% if the vehicle is also powered by gas or diesel. There are no final assembly or battery and mineral sourcing requirements for the credit. It is capped at the lesser of:
- The incremental cost of the vehicle in excess of the purchase price of a comparable gas or diesel vehicle, or
- $7,500 for vehicles under 14,000 pounds or $40,000 for vehicles above 14,000 pounds
Notice 2023-9 provides a safe harbor for determining the incremental cost. Vehicles under 14,000 pounds other than compact car plug-in hybrid electric vehicles will not need to perform an incremental cost calculation because the Department of Energy (DOE) has determined that the incremental cost for those vehicles will always be less than the $7,000 credit cap in 2023.
For all other vehicles, the safe harbor will allow taxpayers to rely on the DOE incremental cost analysis.
The IRS has not so far released a list of vehicles that specifically qualify for the Section 45W credit like it has for the Section 30D consumer credit. Presumably all the manufacturers certified under Section 30D are also certified for purposes of Section 45W, and all the vehicles under 14,000 pounds qualifying for the Section 30D credit also qualify for Section 45W. But the IRS site does not list any vehicles over 14,000 pounds, or any qualifying mobile machinery.
Because the Section 45W credit isn’t restricted by final assembly or mineral or battery sourcing, some carmakers and dealers have begun exploring whether they can retain ownership and lease to customers the vehicles that do not qualify under Section 30D but do qualify under Section 45W. This would allow them to claim the Section 45W credit themselves based on using the credits in a trade or business of leasing. The IRS FAQs provide that whether a lease will be respected will be determined under existing rules, and the FAQ offers some basic information on how the determination of tax ownership is typically made.
Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.
More tax hot topics
No Results Found. Please search again using different keywords and/or filters.