Businesses and tax-exempt organizations purchasing qualified commercial clean vehicles may be eligible for a Clean Vehicle Tax Credit of up to $40,000 under Internal Revenue Code (IRC) Section 45W. This credit incentivizes the adoption of environmentally friendly vehicles and can significantly reduce the cost of upgrading your business fleet.

How Much Is the Credit?

The credit amount depends on the vehicle’s gross vehicle weight rating (GVWR), engine type, and purchase price. Follow these steps to calculate your eligible credit:

1. Determine Maximum Credit Amount by GVWR:
   • Vehicles under 14,000 pounds (such as passenger cars, vans, and small trucks): Maximum credit of $7,500
   • Vehicles 14,000 pounds or more (such as school buses, delivery trucks, and semi-trucks): Maximum credit of $40,000
2. Calculate the Percentage of Basis by Engine Type:
   • 30% of the purchase price for vehicles fully powered by electric or fuel cell technology (EVs or FCEVs)
   • 15% of the purchase price for vehicles partially powered by internal combustion engines, such as plug-in hybrid electric vehicles (PHEVs)
3. Identify the Incremental Cost:
   This is the difference between the vehicle’s purchase price and the cost of a comparable gas or diesel-powered vehicle. For 2024, the Department of Energy provides the following incremental cost figures:
   • $7,000 for compact plug-in hybrid electric vehicles (PHEVs) under 14,000 pounds
   • $7,500 for all other electric vehicles under 14,000 pounds
   • $40,000 for vehicles 14,000 pounds or more
4. Compare the Three Figures:
   Your final credit amount will be the smallest value among:
   • Maximum credit amount (based on GVWR)
   • Percentage of the vehicle’s basis (purchase price)
   • Incremental cost

Who Can Claim the Credit?

Both businesses and tax-exempt organizations can claim the clean vehicle tax credit. There is no limit on how many vehicles your business can claim under this credit.

• Businesses: The credit is nonrefundable, meaning it can only offset taxes owed, not generate a refund. However, any unused credit can be carried forward as a general business credit.
• Tax-exempt organizations: Even if not normally required to file tax returns, these organizations must file Form 990-T to claim the credit.

Eligible Vehicles

To qualify for the credit, the vehicle must:

• Be subject to depreciation unless purchased by a tax-exempt organization
• Be manufactured by a qualified manufacturer under IRC 30D(d)(1)(C)
• Be primarily used for business purposes within the United States
• Not have been claimed for a clean vehicle credit under IRC sections 30D or 45W previously

Additionally, the vehicle must meet one of the following:

• Be a plug-in electric vehicle (EV) with a battery capacity of at least 7 kilowatt hours for vehicles under 14,000 pounds, or 15 kilowatt hours for vehicles 14,000 pounds or more
• Be a fuel cell motor vehicle that meets the requirements under IRC 30B(b)(3)(A) and (B)
• Be mobile machinery as defined by IRC 4053(8), such as specialized work vehicles not designed primarily for highway transportation

How to Claim the Credit

The method for claiming the credit depends on your business structure:

• Partnerships and S corporations: File Form 8936, Clean Vehicle Credits
• Other Businesses: Report the credit on Form 3800, General Business Credit, Part III, Line 1y
• Tax-Exempt Organizations: File Form 990-T with an attached Form 3800, even if you wouldn’t normally file a 990-T

Bottom Line

The Commercial Clean Vehicle Tax Credit offers businesses and tax-exempt organizations a valuable incentive to adopt eco-friendly vehicles. While the credit can significantly offset the cost of upgrading your fleet, eligibility requirements and calculations can be complex. Consulting with a tax professional can help ensure you maximize your benefits and meet all necessary guidelines.

If you’re considering purchasing commercial clean vehicles, reach out to us at PSA CPA to discuss possible credits!