The automotive industry continues to move toward expanding offerings to include electric vehicles (EVs) options. Many automakers, including GM, have committed to offering EV versions of popular car and truck models. Meanwhile, Ford has already started implementing plans to scale production to hit 2 million units in global EV production capacity by 2025. The result has been an increase in the number of EVs driving on Colorado roads, currently, 61,500 EVs are registered with the state. The infrastructure to support these vehicles is also developing with over 1,680 public charging stations available in the greater Denver area. In other words, the move to electric energy is here to stay.
Many believe more can be done to incentivize consumers to explore clean energy options. In August 2022, President Biden signed the Inflation Reduction Act into law. Included were tax incentives designed to reduce the cost of EV ownership. These include the Clean Vehicle Tax Credit, Used EV Tax Credit, Commercial EV tax credit, and more. To help clients, prospects, and others, Hanson & Co has provided a summary of the key details below.
- Clean Vehicle Credit – This incentive provides a $7,500 credit for the purchase of an eligible new electric vehicle or fuel cell electric vehicle (FCV). To qualify, a taxpayer must buy the car for individual use, primarily operate it in the U.S., and meet gross income limits. Eligible EVs must have a battery capacity of at least 7 kilowatt hours, gross vehicle weight of fewer than 14,000 pounds, and final assembly within North America. It is important to note only vehicles made by a qualified manufacturer are eligible. Finally, a sale only qualifies if the car is purchased new, the manufacturer’s suggested retail price is within limits, and the seller reports the required information to the IRS.
- Used EV Tax Credit – Starting in 2023, the purchase of a used EV or FCV from a dealer for less than $25,000 may be eligible for this new credit. The credit equals 30% of the sale price with a maximum of $4,000. To qualify an individual must keep the vehicle for personal use, not be the original owner, not be claimed as a dependent, not claim another used vehicle credit in the prior 3 years, and meet gross income limits. It must be a 2021 model or older, have a battery capacity of 7-kilowatt hours, and a gross vehicle weight of fewer than 14,000 pounds. As mentioned above, the dealer must report certain information to the IRS.
- Commercial EV Tax Credit – This credit is available to organizations for the purchase or lease of eligible commercial clean vehicles. The maximum credit amount is $40,000 for vehicles with a gross vehicle weight of at least 14,000 pounds and is equal to the lesser of 15% of the basis in the vehicle (30% if not powered by gas/diesel) or the incremental cost of the vehicle compared to an equivalent internal combustion engine vehicle. To qualify it must be made by a qualifying manufacturer and be used for business purposes. Finally, the vehicle must have a battery capacity of at least 7 kilowatt hours (if the gross weight is under 14,000 pounds) and 15-kilowatt hours (if the gross weight is 14,000 pounds or more).
- EV Charging Equipment Tax Credit – This incentive has been extended through 2032 and the credit amount remains unchanged at 30% up to $1,000. For businesses, the credit is 6% with a maximum credit of up to $100,000 per unit. To claim the credit the equipment must be placed in a low-income community or rural area.
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The recently passed tax incentives offer an additional dimension of savings for Denver individuals and businesses making EV purchases. Since guidance is still pending for certain incentives, it is important to consult with a qualified tax advisor to determine how you will be impacted. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Hanson & Co can help. For additional information call 303-388-1010 or click here to contact us. We look forward to speaking with you soon.