Qualified Commercial Clean Vehicle Tax Credit

September 15, 2023

Summary

Section 13403 of The Inflation Reduction Act of 2022 (H.R. 5376) established a tax credit for qualified commercial clean vehicles purchased on or after January 1, 2023. To qualify, the vehicle must have a gross vehicle weight rating of less than 14,000 pounds and have a battery rating of not less than 7 kilowatt hours. Mobile machinery, as defined in section 4053(8) (including vehicles that are not designed to perform a function of transporting a load over the public highways) can exceed the 14,000 pound weight limit, but must have a battery capacity of not less than 15 kilowatt hours. The tax credit is worth 30% of the cost, up to $7,500 for vehicles less than 14,000 pounds, or $40,000 for mobile machinery. 

Section 13801 of The Inflation Reduction Act of 2022 also established procedures for other parties to monetize certain tax credits, including this one, for equipment placed in service on or after January 1, 2023 and through December 31, 2032. 

The direct pay option allows non-taxable entities to directly monetize certain tax credits. The provisions apply to nonprofits, a state or political subdivision thereof, the Tennessee Valley Authority, Indian tribal governments (as defined in Section 30D(g)(9)), any Alaska Native Corporation (as defined in Section 3 of the Alaska Native Claims Settlement Act), or any corporation operating on a cooperative basis which is engaged in furnishing electric energy to persons in rural areas. Such applicable entities can elect to be treated as having made a tax payment equal to the value of the tax credit they would otherwise be eligible to claim. The entity can then claim a refund for the excess taxes they are deemed to have paid. The option effectively makes this tax credit refundable for these entities. 

The act also allows eligible taxpayers to transfer all or a portion of their eligible tax credits to an unrelated taxpayer. Transfers must be reported to IRS and only one transfer is permitted. Must be elected no later than the due date for tax filing for the tax year the tax credit is claimed.