Business owners who purchase electric vehicles will be able to take advantage of a new tax credit worth up to $40,000 next year.
Last August, President Joe Biden signed The Inflation Reduction Act, which incentivizes purchasing electric cars, trucks, and other vehicles, into law. Business owners can obtain the credit, which is available for 10 years, for new vehicles purchased on or after Jan. 1, 2023.
The credit is up to $7,500 for vehicles that weigh less than 14,000 pounds and up to $40,000 for vehicles that weigh more. This 14,000-pound demarcation line includes commercial vehicles that are Class 4 and above, or largely medium- and heavy-duty trucks and buses. These would include electric vehicles and electric “mobile machinery”—which are vehicles used for construction, processing, manufacturing, farming, mining, drilling, or timbering.
Calculating the tax credit is a bit complicated. It is worth the lesser of the two: 30% of the vehicle purchase price, or the “incremental cost” compared to a similar gasoline-powered vehicle. What does “incremental cost” mean? It’s simply the difference in net price between the new commercial “clean vehicle” and what a similar vehicle with an internal combustion engine would cost. The lesser of these two calculations equals the tax credit. However, the amount is capped at $40,000.
Because the benefit is structured as a “tax credit,” the business owner must have a tax liability in order to use it (unless the organization is a nonprofit, in which case the financial benefit would arrive in the form of a check). Additionally, the business owner must take a depreciation allowance on the vehicle.
Do you have questions about these new guidelines or other business-related tax matters? Reach out to us for a free consultation: 703-802-2309